Signature Bank was a financial institution that attracted investors due to its exposure to the world of cryptocurrency. However, a class action lawsuit recently filed by investors is accusing the bank's former executives of not properly acknowledging the volatility of the market. This failed acknowledgement lead to the bank's collapse in March, 2021.

The lawsuit focuses on the year 2020, when Signature Bank's CEO, Joseph DePaolo, declared in an earnings call that the crypto sector “…seems like it’s somewhat stabilizing” and that the bank would be ready when the so-called "winter crypto" ceased. Despite crypto volatility, Signature Bank insisted on keeping investors up to date about their crypto deposits, claiming that the bank was managing its balance sheet and compliance department well.

Unfortunately, when FTC bank closed last fall, Signature Bank maintained that its digital asset deposits "remained stable". Then, in March 2021, regulators intervened to close the bank and make depositors whole. However, no protections were given to investors.

The investors suing the former executives of the bank are seeking damages for those who purchased securities in April 2020 and March 2023.

When it comes to crypto, the market is known for its volatility and banks must be aware of this. Signature Bank should have recognized that given the fragile state of crypto and its associated risks, they needed to take extra caution and be transparent with investors even before the bank's collapse. Investors were led to believe that the bank was managing its balance sheet and compliance department well, which was not the case.

No financial entity should outright downplay or ignore the risk of volatility in the crypto markets. The lawsuit brought to Signature Bank highlights the need for greater transparency and awareness in relation to the risks of cryptocurrency and banks must not overlook this.



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