KPMG’s lawyers are asking a California federal court to reconsider a June denial of its motion to dismiss a claim against it in a class action suit filed against the auditor of the Silicon Valley Bank Financial Group, as well as former directors, underwriters and officers — including its former CEO Greg Becker and ex-CFO Daniel Beck.
The putatative class action is a consolidated case alleging securities fraud filed in connection with SVBFG, the parent of the failed Silicon Valley Bank, with Norges Bank and Sjunder AP-Fonden named as lead plaintiffs. The claims were made on behalf of people or entities that purchased SVB stock between Jan. 21, 2021, and March 10, 2023, according to a Jan. 16, 2024 amended complaint filing.
The July 21 motion for reconsideration filed by the Big Four firm focuses on a June 13 order written by Judge Noël Wise, which stated “the principal issue in this case is whether the defendants made materially false representations or ommissions about SVB that induced plaintiffs to buy securities in the bank.”
In the wide-ranging opinion, which rejected three dismissal motions including KPMG’s, Wise agreed with plaintiffs who asserted that Silicon Valley Bank signaled and misled investors into believing it had the ability and intent to hold securities to maturity by labeling them “HTM.”
In its response, KPMG’s motion disputes many of the complaint’s assertions, including that it gave the bank a “clean audit” just days before SVB collapsed, losing billions of dollars in value.
Instead, it asserts that the last audit opinion taken up by the complaint was dated March 1, 2022, more than a year before SVB closed on March 10, 2023. The response also states that at the time of the 2020 and 2021 audits, the complaint doesn’t establish that KPMG knew of the weaknesses in the bank’s finances, nor did it purposefully use the HTM label to mask liquidity issues.
“The fair value of the HTM securities … was reported on the balance sheets and in the notes in the financial statements for 2020 and 2021 for all investors to see,” the filing states. “This contradicts plaintiff’s conclusory allegation that the HTM classification allowed SVB ‘to avoid reporting any declines in the fair value of those securities.’”
The 2023 collapse of the once-high flying Silicon Valley Bank — one of the biggest bank failures since the 2008 financial crisis — resulted in a run on the bank, rattled markets and sent finance leaders scrambling to reassess their lenders, with many seeking to diversify and spread their business relationships across multiple banks.
It also drew scrutiny to KPMG’s role as auditor and its long-term client-auditor relationship with SVB and stirred new debates about auditor independence, CFO Dive reported. U.S. regulators have long contemplated limiting how long auditors work for a client.
Weeks before the bank’s failure, SVB filed a 10-K on Feb. 24, 2023 in which KPMG flagged an issue related to credit losses and unfunded loan commitments as a critical audit matter it discussed with the company’s audit committee. But it did not flag risks related to the ability of the bank’s parent, SVB Financial Group, to continue as a “going concern", CFO Dive previously reported.
Shortly after SVB’s failure, KPMG defended its work, saying that the firm conducts its audits in accordance with professional standards and noting that audit opinions are based on evidence available up to and at the date of the opinion.
