First Republic Bank, Auditor KPMG Targeted in Investor Suit

First Republic Bank and its auditor KPMG were sued by shareholders over alleged misstatements ahead of last month’s regional-banking crisis.

(Bloomberg) — First Republic Bank and its auditor KPMG were sued by shareholders over alleged misstatements ahead of last month’s regional-banking crisis.

The lawsuit, filed Monday in San Francisco federal court by a Florida-based public pension fund, appears to be first targeting the bank since it was crushed in early March by unprecedented outflows. First Republic, its executives and its auditor are accused of repeatedly overstating the safety of its business model even as rising interest rates undermined the value of the bank’s loan and securities portfolios. 

First Republic is slashing its workforce, shrinking its balance sheet and pursuing strategic options after deposits plummeted even more than analysts expected amid the crisis. The bank has been drawn into the turmoil escalated by the collapse of SVB Financial Group’s Silicon Valley Bank, which fell into government receivership in early March after asset sales spooked depositors in the venture capital community.

First Republic to Shrink as Deposits Drop More Than Expected

The city of Hollywood, Florida’s police officers’ retirement system seeks in its proposed class action to represent investors who purchased First Republic securities from January 14, 2021, to March 14, 2023. The pension fund points to the bank’s 2020 annual report, which the complaint says downplayed and concealed the risks of potential increases to interest rates, changes in its mix of deposits, and resulting deposit outflows.

The 2020 annual report included an audit signed by KPMG, which certified the bank’s financial statements, according to the complaint. 

KPMG similarly issued clean audit opinions for clients Signature Bank, a New York-based regional bank taken over by the Federal Deposit Insurance Corp. on March 12, and Santa Clara, California-based Silicon Valley Bank, whose parent is now in bankruptcy. KPMG is also facing investor suits over the SVB collapse.

The suit against First Republic also names as defendants its former chief executive officer, James H. Herbert, and its current CEO and president, Michael Roffler, who spent 16 years at KPMG, including five as an audit partner, according to his executive biography.

First Republic and KPMG didn’t immediately respond to emails seeking comment on the complaint.

The lawsuit ties First Republic’s fate to SVB’s. In March, when SVB collapsed, investors “immediately began to question First Republic’s ability to withstand the interest rate environment and remain solvent,” according to the complaint. On SVB’s news, the price of First Republic shares declined by $83.79, or more than 72% over three trading sessions, the suit says.

KPMG Gave First Republic a Clean Audit Weeks Before Bailout 

Investors learned more about First Republic’s vulnerability when S&P Global Ratings and Fitch downgraded their ratings for the bank, finding that its funding and liquidity profile had changed and represents a “weakest link,” according to the suit.

The case is City of Hollywood Police Officers’ Retirement System v. First Republic Bank, 23-cv-01993, US District Court, Northern District of California (San Francisco).

(Updates with details of complaint in fourth paragraph.)

More stories like this are available on

©2023 Bloomberg L.P.