The new owner of Silicon Valley Bank is suing HSBC and several former employees for more than $1bn, claiming the group “engineered a scheme to plunder” SVB of top bankers and confidential information.
First Citizens, which bought SVB after its dramatic failure, claims in the lawsuit that HSBC and a former senior SVB banker co-ordinated the scheme, dubbed “Project Colony”, to strip the “core of [SVB’s] profitability engine”.
SVB collapsed in early March after haemorrhaging tens of billions of dollars in deposits from venture capital investors and start-ups who were spooked by losses in its securities portfolio. The bank’s failure in the US also toppled its UK affiliate, and days later HSBC had agreed to buy the failed UK entity from the Bank of England for a nominal price of £1.
David Sabow, a senior executive at SVB in the US, joined HSBC “within days” of the UK deal, according to the lawsuit, which was filed in a federal court in California.
The lawsuit claimed that Sabow became the “chief architect” of a scheme to lure more than 40 SVB employees over to HSBC. Those former employees collectively maintained the relationships and detailed information on clients that gave the Silicon Valley lender its advantage with tech clients, First Citizens alleged.
Using data from SVB, Sabow projected that a new unit staffed by the bankers he aimed to poach could generate profits of $66mn in its first year, rising to almost $1.3bn in year five, according to the complaint.
To execute “Project Colony”, Sabow identified six senior bankers at SVB who could in turn bring other employees with them, according to the lawsuit, which also alleges that Sabow had offered defectors “great fortune”.
As a result, 42 employees submitted their resignations, effective immediately, within the space of 30 minutes on the evening of April 9, Easter Sunday, the complaint alleged.
HSBC declined to comment.
First Citizens had acquired SVB just two weeks earlier from the US Federal Deposit Insurance Corporation. The North Carolina bank has previously said it wanted to retain SVB’s close ties to the tech and start-up community on the west coast.
In its complaint, the bank said its efforts to do so have been undermined by the defection of SVB executives and that the co-ordinated resignation of dozens of bankers was a breach of fiduciary duty and duties of loyalty.
“Defendants’ theft and misuse of confidential, proprietary and trade secret information, disruption of First Citizens’ business operations, unfair competition, and unlawful conduct are reprehensible and demand a substantial award of compensatory and punitive damages in an amount to be proved at trial in excess of $1bn,” the lawsuit said.
In the claim, First Citizens warned that financial stability could be undermined were the defection of dozens of bankers from a failed institution not penalised.
“If stable banks are to be [incentivised] to rescue failed banks to restore financial stability, opportunistic competitors and insiders cannot take and replicate the bank’s assets — its highly sensitive confidential, proprietary and trade secret information — before the resolution can be implemented,” it said.
