Banking and Finance Law Daily Wrap Up, RECEIVERSHIPS—2d Cir.: FIRREA Succession Clause for FDIC receivership did not preclude securities fraud claim, (Aug 20, 2026)

By Justin Marcus Smith, J.D.

The fact that a plaintiff’s SEC Rule 10b-5 theory of damages involves the plaintiff’s stock ownership did not mean that the underlying right asserted by the plaintiff’s claim attached to stock ownership and was distinctive to stockholders.

In a securities fraud dispute attendant to the FDIC receivership of Signature Bank, a Securities Exchange Commission Rule 10b-5 right of action was not a stockholder right within the meaning of the Succession Clause of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), held the U.S. Court of Appeals for the Second Circuit. In a matter of first impression, the Second Circuit held the district court erred in concluding that the Succession Clause transferred securities fraud claims to the FDIC. And for that reason, the district court erred in dismissing a pension fund complaint for lack of prudential standing. Next, the plaintiff pension fund did not run afoul of the FIRREA administrative exhaustion requirement because the pension fund claims were not against Signature Bank, the pension fund sought recovery only from KPMG and individual Signature officers. District court subject matter jurisdiction over the consolidated action, in light of the circumstances of two other constituent complaints, was sound. The Second Circuit vacated the dismissal of the district court and remanded (Fonden v. FDIC, No. 25-720 (2d Cir. Aug. 19, 2026)).

Background. Signature Bank (Signature) was an FDIC insured, New York state-chartered bank with 40 branches in several states. Upon the FDIC’s appointment as Signature’s receiver, the Treasury Secretary, Federal Reserve Board Chair, and FDIC Chair issued a joint statement assuring depositors that they would be made whole, but the regulators noted that federal dissolution of Signature Bank would not protect shareholders and certain unsecured debt holders.

A consolidated class action complaint brought by Swedish public pension fund Sjunde AP-Fonden (AP7) and other plaintiffs accused Signature’s auditor KPMG and seven former Signature directors, senior executives, and officers (collectively, defendants) of securities fraud. The FDIC intervened and moved to dismiss for lack of prudential standing and failure to exhaust administrative remedies.

The United States District Court for the Eastern District of New York granted dismissal. The district court held AP7 lacked standing because the Federal Deposit Insurance Corporation, as receiver, took over the AP7 claims pursuant to the FIRREA Succession Provision. Accordingly, AP7 could not assert claims that, by operation of the FDIC receivership, now belonged to third-party FDIC (see Banking and Finance Law Daily, Mar. 24, 2025).

Appeal. On appeal of that district court dismissal, the question AP7 presented was whether the FDIC, as a receiver tasked with winding down the affairs of a failed bank pursuant to the FIRREA Succession Clause, succeeds to the right of an individual to bring a claim for securities fraud under § 10(b) of the Securities Exchange Act of 1934 and Securities Exchange Commission (SEC) Rule 10b-5. Circuits are split on whether to apply the Succession Clause according to its plain text or by differentiating between direct and derivative claims.

The Second Circuit, accepting the factual allegations of the complaint as true, applied de novo review to the district court dismissal and questions of statutory interpretation. The Second Circuit noted that the FIRREA Succession Clause provided for the transfer of certain rights and powers from the failed bank and its institutional stakeholders to the FDIC. In essence, FDIC steps into the shoes of a failed bank. On appeal, AP7 argued the Succession Clause did not apply to its securities fraud claims. AP7 also argued it was not required to exhaust administrative claims.

Interrelated issues. The Second Circuit analyzed that the FDIC motion to dismiss presented the district court with two discrete, yet interrelated issues: (1) whether AP7 lacks prudential standing because the FIRREA Succession Clause transferred ownership of the AP7 securities fraud claims to FDIC; and (2) if AP7 still owned the claims, whether the district court lacked subject matter jurisdiction over the claims due to purported AP7 failure to satisfy the FIRREA administrative exhaustion requirement.

Both issues required an answer to who now owns the AP7 claims. If FDIC owned the claims, that would end the inquiry altogether. If AP7 owned the claims, it would have prudential standing to bring them, and the only remaining questions were whether it was required to exhaust them administratively, and whether it did so, for jurisdiction to attach.

The Second Circuit analyzed that the district court’s conclusion that the Succession Clause transferred the AP7 securities fraud claims to the FDIC necessarily meant that administrative exhaustion did not apply to those claims. That was so because the Succession Clause question underlying the prudential standing issue was inextricably “intertwined” with the jurisdictional question of administrative exhaustion. Deciding the Succession Clause question logically had to come first.

Succession Clause. As a matter of first impression, the Second Circuit disagreed that the Succession Clause applied to the AP7 securities fraud claims. The FDIC had specifically contended operation of the Succession Clause assigned the AP7 claims to the FDIC.

Focusing on the second requirement of the Succession Clause, the district court, relying on a Southern District of New York decision, interpreted rights “with respect to” the institution and its assets as simply rights “regarding” the bank and its assets. The district court interpreted that the content of the KPMG and Signature Bank officers’ alleged misrepresentations related to Signature and its assets. In the alternative, the district court also reasoned that claims against the officers related to the bank because the officers’ directors and officers insurance would pay for any damages.

However, the Second Circuit zeroed-in on the words “of a[] stockholder” under 12 U.S.C. § 1821(d)(2)(A). AP7 argued this requirement means that the right at issue must distinctively belong to a stockholder as a stockholder, that is, through share ownership. The Second Circuit agreed with this interpretation as congruent with Collins v. Yellen, 594 U.S. 220 (2021), the neighboring Succession Clause provisions, and the well-established understanding of stockholder rights under state and federal law.

The Second Circuit held that stockholder rights derive from stock ownership or the corresponding legal relationship between stockholders and corporation. The Succession Clause did not reach the rights a stockholder holds personally and separately from their ownership of a particular stock or stockholder status.

Next, the Second Circuit analyzed that the AP7 claims did not assert the right of a stockholder but rather the right of a stock purchaser under Rule 10b-5. The Second Circuit noted the Birnbaum rule of Birnbaum v. Newport Steel Corp., 193 F.2d 461, 464 (2d Cir. 1952) limits the availability of § 10(b) and Rule 10b-5 private right of action to purchasers and sellers of securities who suffered economic loss due to misrepresentations in connection with purchase or sale. The Birnbaum rule makes it clear that the Rule 10b-5 right of action arises in connection with purchase or sale of securities, not mere ownership of the stock in question. In other words, the 10b-5 right of action is not a property right carried by the shares, nor does it arise out of the relationship between stockholder and corporation.

The district court viewed the AP7 right of action under Rule 10-b5 to be a right in AP7 capacity as a stockholder because its theory of damages depended on a drop in share value. However, the underlying right was what mattered in this case, and it was quite different from rights deriving from stock ownership. The AP7 Rule 10b-5 right of action was not a stockholder right within the meaning of the Succession Clause. The district court erred in concluding that operation of FIRREA and perfection of the resulting receivership of Signature Bank worked a forfeiture of AP7’s Rule 10b-5 right of action.

Administrative exhaustion. Next, the Second Circuit held AP7 was not required to exhaust its administrative remedies. The FDIC had argued that AP7 needed to exhaust its administrative remedies, even though AP7 did not bring them against the bank or the FDIC as receiver, because they still related to acts of Signature.

The Second Circuit held, instead, that Bank of New York v. First Millennium, Inc., 607 F.3d 905, 920-21 (2d Cir. 2010) “squarely foreclosed” the FDIC argument because the AP7 claims were not claims against Signature. The consolidated action did not name Signature as a defendant, did not try to hold Signature liable, and sought recovery only from KPMG and the individual Signature officers.

The court also rejected the FDIC argument that two other complaints in the consolidated action meant the district court lacked subject matter jurisdiction over those two actions at the outset and thereafter over the consolidated action. Even assuming subject matter jurisdiction over a consolidated action would depend on constituent actions that way, the two other complaints also included claims against individual former officers at time of filing. Even if those two complaints created a jurisdictional defect, subsequent dismissal of those claims and filing of the amended consolidated complaint cured it. Amended complaints are operative, and in taking the place of what came before, they can either create or destroy jurisdiction.

The case is No. 25-720.

Judge: Lohier, R.

Attorneys: John James Rizio-Hamilton (Bernstein Litowitz Berger & Grossmann LLP) for Sjunde Ap-Fonden. Joseph Brooks for Federal Deposit Insurance Corp.

Companies: KPMG; Signature Bank; Sjunde AP-Fonden

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