Money Rehab with Nicole Lapin - The Conspiracy at Signature Bank

Episode Date: March 24, 2023

The same day the FDIC swooped in and did damage-control with Silicon Valley Bank, regulators also shut down Signature Bank. But according to Signature Bank, they didn't need to close their doors. Nicole shares both sides of the story.

Money rehabbers, you get it. When you're trying to have it all, you end up doing a lot of juggling. You have to balance your work, your friends, and everything in between. So when it comes to your finances, the last thing you need is more juggling. That's where Bank of America steps in. With Bank of America, you can manage your banking, borrowing, and even investing all in one place. Their digital tools bring everything together under one roof, giving you a clear view of your finances whenever you need it. Plus, with Bank of America's wealth of expert guidance available at any time, you can feel confident that your

money is working as hard as you do. So why overcomplicate your money? Keep it simple with Bank of America, your one-stop shop for everything you need today and the goals you're working toward tomorrow. To get started, visit bofa.com slash newprosmedia. That's b-o-f-a dot com slash n-e-w pros p-r-o-s media. bfa.com slash newprosmedia. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. For this episode, we're going to be talking about a bank closure. No, not that bank closure, not SVB, but close. We're going to be talking about a bank that closed the very same weekend, Signature Bank. If you missed this story because of all of the news surrounding SVB, you're not alone.

If you missed this story because of all of the news surrounding SVB, you're not alone. But this story? This story has got a lot going on. From the Trump family to accusations of money laundering bumping up against accusations that the government is out to get crypto. This story starts with Signature Bank. And before I get into the fall, let's talk about the rise. They were the cool kids bank around a decade ago. I mean, so cool, in fact, that they were actually my bank when I lived in New York and had my first business. Founded in 1999 by Scott Shea and Joseph DiPaolo, Signature Bank focused on mid-sized businesses in New York. In his own words, co-founder Shea said, quote, my golden rule for banking is don't think you're a genius

if you're a banker, just avoid the stupid stuff. This mission statement worked very well for many years. They were the only publicly traded bank not to invest in subprime mortgages before the subprime crash of 08. So brownie points there. The bank focused on customers who had a lot of money and connections, but weren't massive corporations like Verizon. Interestingly, one of Signature's specialties was financing the purchase of taxi medallions, you know, the license you need to operate cabs in New York City. That is how Michael Cohen, lawyer and apparently taxi medallion investor, came to start working with Signature Bank. And if you're like, that name sounds so familiar, Lappin, you are right. It sure does. He was Trump's attorney who was involved with paying off porn star Stormy Daniels in exchange for her silence around an alleged affair with Trump. Now, back before he was arranging hush money for porn stars,

Cohen was using Signature Bank to finance his various business ventures and introduced his close friends, the Trump family, to his favorite bank. The family and the bank got on so well that Ivanka, at 29, ended up sitting on the bank's board at the same time as her father, husband, and father-in-law, were all borrowing money from the bank. Side note, let's not forget that Ivanka's father-in-law, Charles Kushner, was involved in some pretty serious financial crimes like illegal campaign contributions, tax evasion, and witness tampering. But beyond taxis and Trumps, Signature Bank had a lot of their money tied up in two things, commercial real estate and

crypto. There's another bank with a similar profile, Silvergate. As loyal Money Rehab listeners will remember, that bank went under about a week before the closure of Signature. Generally, commercial real estate is thought of as pretty safe, but the pandemic was a rough time in New York and in California where Signature and Silvergate were located. But the pandemic was a rough time in New York and in California, where Signature and Silvergate were located. But beyond real estate, the biggest contributor to Signature's downfall was crypto. And that fact was painstakingly documented by a 63-year-old chicken farmer in California. I know this sounds like a tangent, but I swear it is worth talking about. The aforementioned chicken farmer's

name is Mark Cahodes, and beyond his farming, he is a well-known trader. In fact, the Financial Times describes him as a veteran short seller. Mark is coming off an incredibly impressive hot streak of market predictions, including absolutely nailing Sam Bankman-Fried for being totally in over his head. In mid-January, Mark sent the FDIC and several regulatory bodies a 20-page letter outlining in meticulously documented detail all the problems at Signature Bank. Now, shout out to Mark because warning regulators is part of his standard practice before he starts shorting a stock. Mark alleged that the bank lacked basic controls and that their Cignet network, the crypto exchange created by the bank, was so poorly regulated that it was allowing

countless illegal transactions. But Mark didn't stop there. He went on to enumerate some of the worst offenders from every black market. Human trafficking, drugs, terrorism. Cut to two months later, March 10th, the day Silicon Valley Bank went under. As I reported here on Money Rehab, SVB's crash affected the banking industry at large. And as a result, anxious bank customers started withdrawing their money from banks. The day Silicon Valley Bank went under, Signature Bank had a total of $10 billion in withdrawals in one day.

So when the FDIC and the United States government swooped in to save depositors of SVB that Sunday, they also decided to close Signature Bank as well. According to CNBC, this move, quote, shocked executives of Signature Bank. Because while Signature Bank did have $10 billion worth of withdrawals in one day, they weren't run dry. Signature had 40 branches, assets of more than $110 billion, and deposits of more than $88 billion at the end of 2020, according to a regulatory filing. And no one was more surprised or vocal than board member Barney Frank. Because,

oh yeah, as if this story didn't have enough characters in it, let's introduce Barney Frank. Frank is one of the two sponsors of the Dodd-Frank Act that was supposed to prevent the sort of risky banking practice that led to the 2008 crisis. And he currently sits on the board of Signature Bank, or he did until the bank was closed by the government. And now Frank is running around claiming that there was no banking irregularities going on at Signature, that its closure was totally off base, and, quote, we had the liquidity, we were punished for crypto. Frank remains steadfast that while Signature did suffer a small bank run,

if the government had stepped in on Friday, frozen the bank, and then allowed it to open on Monday, it would have been totally fine. The conspiracy Frank is hinting at is that Signature Bank was shut down by the U.S. government because the U.S. government is trying to shut down crypto players. firm that between the bank run, $11 billion in commercial real estate loans that are now underwater and volatile crypto assets, Signature Bank needed to be seized under the systemic risk exception. So who is on the right side of history here? The U.S. government, who claims that Signature Bank needed to be shut down in order to stop the contagion of doubt in the banking industry? Or Frank and the other signature stans who say that the bank should have been kept open and was inappropriately shut down for ulterior motives? To be honest, this is a mystery that I

am not sure will be solved. Because with the bank now shut down, the case is kind of closed. And the industry is moving on. Already, many of the bank's assets have been sold to New York Community Bank Corp. Another portion will remain in receivership. The fate of their crypto assets remains TBD. For today's tip, you can take straight to the bank. As you can see with the example of Signature Bank, it's really helpful to know if your bank is too embroiled with risky business like crypto or sketchy real estate loans. And a step beyond that, another thing you want to do is see how your bank invests their values. There are a lot of resources you can use to learn more about your

bank. MightyDeposits.com, for example, where you can see which banks are investing in sustainable companies, which are women-owned, investing in low-income communities, and more. So figure out what your bank does with its money. Because remember, your bank's money is actually your money. Money Rehab is a production of Money News Network.

I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Levoy. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. and follow us on Instagram at Money News and TikTok at Money News Network for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make. Thank you.