KPMG faces questions over SVB and Signature audits

KPMG could find itself on the receiving end of lawsuits and investigations after giving a clean audit opinion to the financial statements of Silicon Valley Bank's parent company and Signature Bank only weeks before they failed.

The Justice Department and the Securities and Exchange Commission have opened investigations into SVB's management in the wake of the spectacular failure of the bank last week. The Federal Deposit Insurance Corporation took over SVB last Friday as worried depositors rushed to withdraw money from their accounts at the Santa Clara, California-based bank, and it took over New York-based Signature Bank last Sunday. There's no indication KPMG is under investigation at this point, but it may be facing questions from the SEC and the Public Company Accounting Oversight Board for giving a clean audit opinion to the banks on their financial statements.

The Wall Street Journal pointed out that KPMG had given a clean audit opinion to SVB Financial Group on Feb. 24, only 14 days before the bank failed, and to Signature on March 1, only 11 days before it failed. The WSJ also reported that the auditor who gave Signature a clean audit opinion back in 2021 later went to work at the bank as chief risk officer.

Tannen Maury/Bloomberg

Accounting Today reached out to KPMG about its audit of SVB and the firm declined to comment. "Due to client confidentiality, we have no specific comment," said a spokesperson. "We conduct our audits in accordance with professional standards. It's important to recognize that audit opinions, which only address the financial statements and internal controls of the business, are based on audit evidence available up to and at the date of the opinion. Any unanticipated events or actions taken by management after the date of an opinion could not be contemplated as part of the audit."

The Financial Times reported that KPMG chair and CEO Paul Knopp was asked at an event Tuesday at New York University about the SVB and Signature audits and stood by them. "As we take into account everything we know today . . . we stand behind the reports we issued and we think we followed all professional standards," he said. 

"You have a responsibility until the day you issue the audit report to consider all facts that you know, so we absolutely did do that," he added, according to the FT. "But what you can't know with certainty is what might happen after that audit report is issued." He pointed to market-driven events and customers' unpredictable reactions.

The SEC and the DOJ are probing the behavior of some of SVB's top executives after they sold shares of stock only weeks before the bank collapsed. SVB Financial CEO Greg Becker and CFO Daniel Beck reportedly both sold shares the week before the bank collapsed in pre-scheduled sales of stock. The WSJ reported that  Becker exercised options on 12,451 shares on Feb. 27 and sold them the same day, earning around $2.3 million, while Beck sold a little over $575,000 worth of shares that day as well, approximately one-third of his SVB holdings. 

"Both sales were done under so-called 10b5-1 plans filed 30 days earlier," said the WSJ. "These plans allow insiders to schedule share sales in advance to deter any liability for trading on nonpublic information."

However, the SEC is tightening the rules for such plans to mandate a 90-day waiting period. 

Becker reportedly lobbied back in 2015 to weaken some of the requirements in the Dodd-Frank Act of 2010 and exempt his bank from some of the more stringent regulations, stress tests and capital requirements, according to The Lever news site, an effort that proved successful. One of the architects of the Dodd-Frank law, former Rep. Barney Frank, D-Massachusetts, ultimately became a lobbyist for Signature after joining the bank's board, according to the WSJ, and helped weaken some of the banking regulations for smaller banks under the law.