Nordic Investors to Lead Class Actions Against Failed US Banks

Former executives of the collapsed Silicon Valley Bank are facing a class action lawsuit led by two of Europe’s largest institutional investors.

It is one of three class action lawsuits against the three major banks that failed earlier this year 0 SVB, Signature Bank, and First Republic Bank — and all are being led by large Nordic institutions.

Norges Bank — the manager of Norway’s $1.5 trillion Government Pension Fund Global — has been appointed by a US court to serve as a co-lead plaintiff alongside the Swedish pension fund Sjunde AP-fonden (AP7) for the lawsuit.

This marks the first time that Norges Bank will lead a legal action on behalf of a group of investors.

Nicolai Tangen, CEO of Norges Bank Investment Management (NBIM), emphasized his organization’s responsibility to maximize recoveries after the SVB collapse and to signal that such market behavior is “not acceptable”.

Carine Smith Ihenacho, chief governance and compliance officer at NBIM, added: “It is important for us to take legal action where the alleged conduct raises significant concerns about market integrity. We have clear expectations towards the companies we are invested in and see this as a part of being a responsible investor.”

The lawsuit alleges that SVB’s former executives, directors, financial advisors, and an outside auditor made misrepresentations regarding financial conditions and risk management, resulting in significant losses for SVB investors when the bank collapsed in March.

NBIM emphasized that the case not only seeks justice for the losses incurred by SVB investors but also addresses broader concerns about the governance of large financial institutions and the integrity of public markets.

Sweden’s AP7 is co-lead plaintiff, with the two institutions having successfully lobbied the court to combine several similar lawsuits against SVB into one class action.

While it is not known how much AP7 lost through exposure to SVB shares, NBIM disclosed losses of approximately $140 million in a statement to Investment & Pensions Europe.

Swedish funds lead lawsuits

The SVB case follows AP7’s appointment as lead plaintiff in a class action against Signature Bank, which also collapsed in March this year.

In this case, the lawsuit alleges that former Signature Bank executives made “made false or misleading statements, or failed to disclose material adverse facts about Signature Bank’s business, operations, and prospects” in two press releases issued in the days leading up to the bank’s collapse.

AP7 lost approximately $22.3 million as a result of the collapse of the bank, according to court documents.

The $97 billion Swedish state pension fund considers legal action to be an important part of its ownership tools to protect the interests of its savers, ensuring accountability from companies and acting as a deterrent against unlawful conduct, while also recovering losses to compensate shareholders.

Meanwhile, fellow Swedish pension provider Alecta has been appointed lead plaintiff in a class action against First Republic Bank, which collapsed and was sold to JP Morgan Chase on May 1 under guidance of regulators. Alecta sold its stake before this, with an estimated loss of $720 million.

CEO Peder Hasslev said in a statement, reported by Reuters: “We have a duty to take the legal measures we can to recover as much of the capital as possible after the collapse of First Republic.”

Alecta, which oversees $113 billion in assets, is also participating in the Signature Bank and SVB lawsuits. Its investments in US banks resulted in losses of approximately $1.9 billion earlier this year, which led to its chief executive officer being dismissed and Sweden’s regulator launching a probe of the company’s risk management processes. Alecta has since overhauled its equity strategy.

The importance of class actions

It is not unusual for European and US institutions to take part in, or even lead, class actions against companies. In cases of bankruptcy in particular, it can be the only option for investors seeking to recoup losses.

AP7 is particularly active in this area and has experienced several successes. Earlier this year it secured a $450 million settlement from Kraft Heinz in relation to a lawsuit that alleged the US food giant had made materially misleading statements in the build up to the 2015 merger of Kraft Foods and Heinz.

According to a website dedicated to the class action, the defendants in the case “have denied and continue to deny any wrongdoing”, and chose to settle “solely to eliminate the uncertainty, burden, and expense of further litigation”.