FDIC Fights SVB Financial Bankruptcy Plan Amid $1.9 Billion Suit

The Federal Deposit Insurance Corp. objected to SVB Financial Group’s proposed restructuring plan as the two continue litigating over $1.9 billion in disputed funds.

The plan proposed by the bankrupt former parent of Silicon Valley Bank unlawfully eliminates the FDIC’s rights to offset claims it holds against SVB Financial with debt it owes to SVB Financial, the federal regulator said in an objection filed Monday in the US Bankruptcy Court for the Southern District of New York.

The FDIC has the right to set off its claims against debt under section 553 of the US Bankruptcy Code, the agency said. Its claims include damages caused by SVB leaders who allegedly breached fiduciary duties, damages from SVB Financial’s alleged unjust enrichment, and tax refunds that the agency says SVB Financial must turn over, according to a court filing in related litigation.

SVB Financial’s plan also proposes to release claims against third parties, but the agency argued that’s prohibited because Congress transferred the rights to SVB’s claims and causes of action to the FDIC when it took control of the collapsed bank via a receivership last year.

SVB Financial filed for Chapter 11 bankruptcy in March 2023 shortly after the bank itself collapsed. The bank came under a run on its deposits and was forced to realize hundreds of millions in losses on long-dated treasury bonds. After being placed into receivership, SVB was sold to First Citizens Bank, while its former parent took on the FDIC in bankruptcy.

SVB Financial sued the FDIC in the US District Court for the Northern District of California earlier this year, saying the agency has wrongfully held onto $1.9 billion in funds that were on deposit when the bank was placed into receivership. The case is ongoing.

SVB Financial declined to comment on the FDIC’s objection.

Sullivan & Cromwell LLP represents SVB Financial. Reed Smith LLP represents the FDIC.

The case is SVB Financial Group, Bankr. S.D.N.Y., Docket No. 23-10367-mg, 7/8/24.