A U.S. appeals court on Wednesday reinstated a securities fraud lawsuit filed by investors against former executives of Signature Bank and its auditor, KPMG. The 2nd U.S. Circuit Court of Appeals in Manhattan ruled that the federal government's 2023 takeover of the bank did not strip shareholders of their legal right to sue for losses.
The legal dispute follows the March 2023 collapse of Signature Bank, which occurred two days after the failure of Silicon Valley Bank. Regulators closed Signature after customers withdrew approximately 20% of the bank's total deposits. Following the closure, the Federal Deposit Insurance Corp (FDIC), an agency that provides insurance to approximately 4,250 banks, argued that a 1989 law gave it exclusive authority to pursue legal claims related to the failed institution.
In a 3-0 decision, the appeals court rejected the FDIC's interpretation of the Financial Institutions Reform, Recovery and Enforcement Act of 1989. Circuit Judge Richard Wesley wrote that while the law gives the FDIC broad powers as a receiver, it does not grant the agency ownership of rights that stockholders hold personally. The ruling moves the case back to a U.S. district judge in Brooklyn, who had previously dismissed the lawsuit in March 2025.
The scale of the impact is tied to the 2023 banking crisis, where Signature Bank saw billions of dollars in withdrawals. According to an FDIC report, approximately 92% of the bank's deposits were uninsured in 2021, and 40% of all deposits were held by just 60 clients. The shareholders are seeking to recover losses resulting from what they allege was an inflated share price caused by concealed liquidity risks. If the lawsuit eventually succeeds, it could result in a court-ordered payout to the affected investors, though the appeals court did not rule on the actual merits of the fraud claims.
For the broader banking and legal sectors, the decision clarifies a "succession clause" in federal law that had been used to block private litigation after bank failures. It follows a precedent set by a 2021 Supreme Court decision regarding Fannie Mae and Freddie Mac. The case now returns to U.S. District Judge Frederic Block in Brooklyn for further proceedings. No specific trial date or deadline for the next phase of the litigation was reported.