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  • Thursday, 29 February 2024
Auditor and underwriters cited in SVB collapse lawsuit

Auditor and underwriters cited in SVB collapse lawsuit

Auditing firm KPMG and underwriters of the 2019 IPO of now-collapsed lender SVB Financial are among the defendants named in a new lawsuit that alleges they misled investors about the bank's financial health.

The suit, filed in California by a group of investors, claims that KPMG failed to properly audit SVB's financial statements and did not disclose that the bank was facing significant loan losses and credit risks. It also alleges that underwriters, including JPMorgan Chase and Goldman Sachs, did not properly vet the bank's loan portfolio or disclose the risks to investors.

SVB Financial, which specialized in providing loans to startup companies and venture capital firms, collapsed in 2020 after suffering massive losses due to the COVID-19 pandemic. The bank's failure was a major blow to the Silicon Valley startup ecosystem, which relied heavily on its services.

The lawsuit seeks to recover damages on behalf of investors who purchased SVB Financial stock between January 2019 and July 2020. The plaintiffs allege that they were misled by the bank's financial statements and the underwriters' marketing materials, which portrayed SVB as a stable and profitable institution.

In a statement, KPMG said that it stands by its audits of SVB Financial and that it will vigorously defend against the lawsuit. The auditing firm also noted that it has no role in determining a company's financial health or viability, and that its audits are based on the information provided by the company.

The underwriters named in the suit have not yet commented on the allegations.

The collapse of SVB Financial was a significant blow to the startup ecosystem in Silicon Valley, which relied heavily on the bank's services to fund new ventures and support growth. The bank's failure also highlighted the risks associated with lending to high-risk startups and the challenges faced by lenders during economic downturns.

The lawsuit comes amid a broader debate about the role of auditors and underwriters in the financial system. Critics argue that auditing firms and underwriters often prioritize their relationships with clients over their obligations to investors, and that they are not held accountable for their failures.

In response, regulators have proposed new rules and regulations aimed at improving the transparency and accountability of auditors and underwriters. These measures include requiring auditors to disclose more information about their audits and to be more independent from the companies they audit, as well as imposing stricter penalties for violations.

The outcome of the SVB Financial lawsuit could have significant implications for the auditing and underwriting industries, as well as for the startup ecosystem in Silicon Valley. If the plaintiffs are successful in their claims, it could lead to a wave of similar lawsuits against other auditing firms and underwriters, and could also lead to greater scrutiny of the lending practices of startup lenders.

Regardless of the outcome, the lawsuit serves as a reminder of the risks associated with investing in high-risk ventures and the importance of due diligence and transparency in the financial system.

 

Auditing firm KPMG and underwriters of the 2019 IPO of now-collapsed lender SVB Financial are among the defendants named in a new lawsuit that alleges they misled investors about the bank's financial health.

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