SVB Cayman Liquidators Allege FDIC Failed Duties to Depositors

Silicon Valley Bank’s Cayman Islands branch filed for Chapter 15 bankruptcy on Thursday as its liquidators try to recoup millions in funds, insisting that hundreds of account holders there were treated unfairly by the Federal Deposit Insurance Corporation.

Liquidators for that branch — the only unit outside the US that took deposits — alleged in court papers that the independent US agency which insures deposits made an “arbitrary decision” when classifying SVB Cayman account types.

Specifically, the liquidators disagree with the agency’s decision to deem some $477 million of funds held by the Cayman unit as uninsured, according to court papers. The FDIC said those funds are unsecured claims, muddying their owners’ prospects for repayment.

In its capacity as receiver, the FDIC “has failed in its duties to SVB Cayman” the liquidators said, adding that they’re seeking help from US courts “in obtaining discovery into SVB Cayman’s claims and other assets.” When it failed last year, SVB Cayman’s customers had about $866 million deposited in three types of accounts, according to the filing. Only one of those account types was deemed insured by the FDIC.

The liquidators added that 99% of the deposits with SVB Cayman that were not categorized as insured by the FDIC are “of Chinese origin or China-investment connected.” The way the FDIC classified account holders raises “significant national origin concerns and merit further investigation,” the liquidators argue.

From the start of the bank’s collapse, SVB Cayman was left behind, the liquidators allege. While the vast majority of SVB’s banking operations were sold to First-Citizens Bank & Trust Co. out of receivership, the Cayman unit wasn’t included in that package, court papers show.

Regulators stepped in to seize Silicon Valley Bank in March 2023, in a stunning fall after a cash exodus from the tech startups that had fueled its rise. The FDIC became the so-called receiver for SVB and decided to cover all deposits there.

The Cayman entity has been lobbying US politicians — even enlisting a former US congressman for help — and arguing that some US investors had been treated unfairly in the bank’s receivership, according to court papers. Representatives for the Cayman entity wanted to meet with the FDIC to discuss their concerns, but those hopes were dashed when the liquidators received a so-called claim denial letter earlier this month, prompting the Chapter 15 filing.

In a separate development, New York city filed a claim on Thursday seeking more than $2.1 million in back taxes from SVB before the California-based regional lender collapsed last year. The bank’s former parent company, SVB Financial Group, filed for Chapter 11 bankruptcy in New York at that time.

The bankruptcy is Silicon Valley Bank (Cayman Islands Branch), 24-10076, US Bankruptcy Court for the Southern District of New York (Manhattan).

(Updates with details on dispute throughout.)

--With assistance from Lucca de Paoli.

To contact the reporters on this story:
Janine Phakdeetham in Bangkok at jphakdeetham@bloomberg.net;
Dorothy Ma in Hong Kong at dma143@bloomberg.net;
Amelia Pollard in New York at apollard18@bloomberg.net

To contact the editors responsible for this story:
Andrew Monahan at amonahan@bloomberg.net

Luca Casiraghi, Jeremy Hill

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