Eastern District of New York Holds that FDIC Assumes Failed Bank Investors’ Securities Claims

On March 21, 2025, Judge Frederick Block of the U.S. District Court for the Eastern District of New York dismissed, for lack of standing, a putative securities class action against KPMG LLP and seven former directors and officers of Signature Bank, which collapsed and was placed into FDIC receivership in March 2023. In a securities fraud action filed shortly after the bank’s collapse, an institutional investor, purporting to represent a class of shareholders, alleged that the directors and officers made public misrepresentations about Signature’s liquidity and risk management that inflated the stock value, and that KPMG, as Signature’s outside auditor, either intentionally or recklessly issued unqualified audit opinions on Signature’s financial statements and internal control over financial reporting. The individual defendants and KPMG moved to dismiss for failure to state a claim.

While the defendants’ motions were pending, the FDIC, as receiver for the bank, intervened in the case and moved to dismiss it on the ground that, under the Succession Clause of the Financial Institutions Reform, Recovery, and Enforcement Act (“FIRREA”), the FDIC succeeded to the shareholders’ claims. The FDIC argued that the securities claims, even though direct claims of the shareholders, are “with respect to” the bank and its assets, as provided in FIRREA. The court agreed, analyzing a circuit split as to whether FIRREA’s Succession Clause can apply to both direct and derivative claims or only to derivative claims. The court found that the statutory language of the Succession Clause does not distinguish between direct and derivative claims, and the FDIC therefore succeeded to, and now owns, the plaintiff’s claims. The court dismissed the case for the plaintiff’s lack of standing and thus did not reach the defendants’ motions to dismiss.

The case is Sjunde AP-Fonden v. DePaolo, No. 23-cv-1921 (E.D.N.Y. Mar. 21, 2025). The investor-plaintiff is represented by Bernstein Litowitz Berger & Grossmann LLP and Kessler Topaz Meltzer Check, LLP. The FDIC is represented by Wollmuth Maher & Deutsch LLP. KPMG is represented by King & Spalding LLP. The officers and directors are represented by Fried Frank Harris Shriver & Jacobson LLP, Dechert LLP, Harris St. Laurent & Wechsler LLP, Covington & Burling LLP, Crowell & Moring LLP, Lankler Siffert & Wohl LLP, and Perkins Coie LLP. A copy of the order is available here.