A three-judge panel of the U.S. Court of Appeals for the Second Circuit in Manhattan revived a class-action lawsuit against former executives and the auditor of Signature Bank, ruling that the Federal Deposit Insurance Corporation’s seizure of the lender did not bar shareholders from pursuing securities fraud claims.
The appeals court, in a 3-0 decision issued Wednesday, rejected the FDIC’s argument that a 1989 statute granted the regulator exclusive authority to pursue such claims as receiver. The ruling, authored by Circuit Judge Richard Wesley, returns the case to U.S. District Judge Frederic Block in Brooklyn, who had dismissed it in March 2025. The decision did not address the merits of the lawsuit.
Judge Wesley cited a 2021 Supreme Court ruling on Fannie Mae and Freddie Mac shareholder rights following the 2008 government takeover, applying the Succession Clause under the Financial Institutions Reform, Recovery and Enforcement Act of 1989. The opinion emphasized that stockholder rights derive from ownership and the legal relationship with the corporation, and are not extinguished by a receivership.
The lawsuit, led by Sweden’s Sjunde AP-Fonden pension fund, targets seven former Signature executives and directors, as well as the bank’s former auditor, KPMG. The plaintiffs allege securities fraud in connection with the bank’s collapse in March 2023. Regulators closed Signature just two days after Silicon Valley Bank failed, and the broader banking turmoil claimed First Republic in May 2023.
The FDIC has previously attributed Signature’s failure to inadequate risk management amid a strategy of rapid, unrestrained growth. By 2021, approximately 92% of Signature’s deposits were uninsured, and 40% of deposits were concentrated among just 60 clients. Customer withdrawals surged following the Silicon Valley Bank collapse, with several billion dollars—about 20% of Signature’s total deposits—leaving the bank in a matter of days.
The FDIC insures deposits at roughly 4,250 U.S. banks and savings associations. Flagstar Bank subsequently acquired substantially all of Signature’s deposits.
The appeals court’s decision underscores ongoing legal uncertainty surrounding the scope of receiver powers under post-crisis financial regulations.
