The investigation, spearheaded by the law firm Hagens Berman, centers on whether Coastal Financial executives failed to disclose material risks associated with its lending operations. While the company previously touted rigorous partner screening and consistent third-party oversight, these assurances were called into question when the firm reported a $42.1 million net loss for the second quarter of 2026.

The financial fallout was primarily driven by $68.8 million in pre-tax charges linked to a single partner relationship, which included a $46 million valuation adjustment. The market reaction was swift, with CCB shares plummeting from $70.66 to $39.91 on July 30, 2026. This collapse was further complicated by the abrupt announcement that the company’s Chief Financial Officer would be stepping down.

Reed Kathrein, the partner leading the inquiry, noted that the legal team is specifically examining when the company first identified issues with the partner portfolio and whether public statements regarding internal controls were accurate. The firm is currently soliciting information from investors and whistleblowers who may have non-public insight into the company’s underwriting practices.