Last Updated: August 20, 2026 
A federal appeals court has allowed Signature Bank shareholders to continue a lawsuit seeking compensation for losses connected to the bank’s March 2023 collapse.
On August 19, 2026, the U.S. Court of Appeals for the Second Circuit ruled 3-0 that the FDIC’s takeover of Signature Bank did not eliminate shareholders’ ability to pursue their own claims against former bank officials and KPMG.
The ruling reverses a lower-court decision that had dismissed the shareholder action in March 2025.
What Are Signature Bank Investors Alleging?
The proposed class action is led by Swedish pension fund Sjunde AP-Fonden.
The investors accuse seven former Signature Bank executives and directors, as well as the bank’s former auditor KPMG, of making misleading statements concerning Signature Bank’s liquidity risks and its approach to risk management.
According to the allegations, those representations contributed to an inflated share price before Signature Bank failed.
The shareholders are seeking compensation for investment losses they say resulted from the alleged misconduct.
These allegations remain disputed, and the Second Circuit’s ruling does not establish that any defendant committed securities fraud or is liable for the investors’ losses.
Why Did the Lower Court Dismiss the Lawsuit?
After Signature Bank failed, the FDIC was appointed as the bank’s receiver.
The FDIC argued that the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) transferred the relevant shareholder claims to the agency when it became receiver.
Under that interpretation, shareholders would not independently possess the right to pursue the claims themselves.
A federal district judge in Brooklyn agreed with the FDIC and dismissed the lawsuit in March 2025.
The shareholders appealed.
Second Circuit Rejects FDIC’s Exclusive-Control Argument
The Second Circuit disagreed with the lower court’s interpretation of FIRREA.
Circuit Judge Richard Wesley, writing for the court, concluded that although FIRREA’s succession provision gives the FDIC broad authority after taking control of a failed bank, it does not transfer every personal legal right belonging to shareholders.
The court distinguished rights belonging to the bank itself from rights that shareholders possess personally and separately.
As a result, the panel concluded that the FDIC’s receivership did not automatically prevent the shareholders from pursuing their securities claims.
The decision is significant because it addresses the scope of the FDIC’s authority when it becomes receiver for a failed financial institution and the extent to which individual shareholders retain independent legal claims.
What Happened to Signature Bank?
New York regulators closed Signature Bank on March 12, 2023, shortly after the collapse of Silicon Valley Bank.
Signature experienced a rapid run on deposits as concerned customers withdrew several billion dollars, approximately 20% of the bank’s deposits.
The FDIC later attributed Signature Bank’s failure in part to inadequate risk management during a period of rapid growth.
By 2021, approximately 92% of the bank’s deposits were uninsured, while roughly 40% of deposits were held by only 60 clients, creating significant concentration and liquidity risks.
Signature Bank and Silicon Valley Bank also had substantial exposure to customers connected with the cryptocurrency industry.
Following Signature’s closure, Flagstar Bank acquired substantially all of its deposits.
Appeals Court Did Not Decide Whether Investors Will Win
The Second Circuit’s decision resolves an important procedural and legal question, but it does not determine whether the shareholders’ underlying allegations are valid.
The appeals court did not rule that the former Signature Bank officials or KPMG committed securities fraud, nor did it award damages to shareholders.
Instead, the decision means that the lawsuit can continue.
The case has been returned to U.S. District Judge Frederic Block in Brooklyn for additional proceedings.
The parties may now continue litigating the underlying allegations, including whether the challenged statements were misleading and whether investors can establish the elements necessary to recover damages.
What Happens Next in the Signature Bank Lawsuit?
With the dismissal reversed, the shareholder litigation will return to the federal district court.
Further proceedings could address the sufficiency and merits of the investors’ claims, defenses raised by the former Signature Bank officials and KPMG, and other issues that were not resolved by the Second Circuit’s August 19 ruling.
The appellate decision therefore represents a victory for the shareholders on their right to pursue the case, rather than a final victory on liability.
For now, no court has determined that the defendants are responsible for the losses alleged by Signature Bank investors.
Disclaimer: This article is provided for general informational purposes only and reports on ongoing civil litigation concerning the collapse of Signature Bank. The allegations against former Signature Bank officials and KPMG are disputed claims and have not been established as findings of liability. The Second Circuit’s decision allowed the shareholder lawsuit to proceed but did not decide the merits of the underlying claims. Court proceedings and the status of the litigation may change. This article does not constitute legal advice.
