SVB Financial’s First Bankruptcy Hearing ‘Wasn’t Really So Routine,’ Says Legal Expert
The former Silicon Valley Bank holding company needs access to the bank's FDIC-controlled funds to pay creditors and support two other operations, says Kleinberg, Kaplan partner Dov Kleiner.
A $2.1 billion fight is brewing between SVB Financial Group, once the parent company of Silicon Valley Bank (SVB), and the Federal Deposit Insurance Corporation (FDIC).
SVB Financial, in its first bankruptcy hearing in a federal court in New York, claims the FDIC improperly froze $2.1 billion in funds when it became SVB's receiver after California regulators closed the bank on March 10 for what it called “inadequate liquidity and insolvency.” SVB Financial filed for bankruptcy protection on March 17.
So what should've been a routine bankruptcy court hearing Tuesday “wasn’t really so routine,” said Dov Kleiner, partner at law firm Kleinberg, Kaplan, Wolff & Cohen, P.C.
“They want it because they’ve got creditors [and] they’ve got about $3.4 billion of debt against them,” Kleiner told CoinDesk TV’s “First Mover” on Wednesday, referring to the holding company. “If that money belongs to the holding company … then it all belongs to the creditors of the holding company.”
The FDIC disagrees, however, and also has said the former holding company might have to shoulder costs related to the bank failure.
Kleiner said SVB Financial needs access to that cash not only to pay its creditors but to continue running two other operations – an investment bank and an asset management firm. He said those operations have “about $9.5 billion worth of assets” managed in various funds.
California-based SVB was taken over by the state’s Department of Financial Protection and Innovation (DFPI) on March 10. Two days later, the FDIC took the bank into receivership. All SVB deposits and assets were moved to a new entity, Silicon Valley Bridge Bank NA.
Klein said the FDIC-controlled bridge bank claims SVB Financial owes it “money for various things” and that SVB is “not going to turn over any of those [$2.1 billion in] funds until we know how much is owed [and] who has a priority [for] them,” he said.
Deciding which entity controls that $2.1 billion in frozen funds will likely to take some time to play out, Klein said.
“It'll be a fight over which law applies, and then it'll probably be a fight over what the actual claims are,” he said.
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