Credit Suisse, Switzerland’s second-largest bank, now faces a $10 billion lawsuit filed by New York’s attorney general for alleged fraud in selling residential mortgage-backed securities before the 2008-financial crisis. The latest developments could strengthen the state attorney general’s hand in punishing other banks for bad behavior tied to the recession.
Claims against Credit Suisse
New York sued Credit Suisse in November 2012, claiming the bank misrepresented the risks of investing in mortgage-backed securities. Last year, the bank argued that New York missed a three-year deadline for suing, while the state countered that it had six years to file its complaint.
New York Attorney General Eric Schneiderman has pursued various banks by citing provisions contained in the powerful anti-fraud statute, the Marin Act. Under the Act, “false promises” by sellers of securities are against the law.
When it comes to finding future business champions, Warren Buffett and Charlie Munger have really excelled over the past seven decades. Q3 2021 hedge fund letters, conferences and more One could argue that these two individuals are some of the best growth investors of all time, thanks to their ability to spot companies like Coca-Cola Read More
The attorney general claimed Credit Suisse knew about “pervasive flaws” in the screening of residential loans underlying the mortgage securities it sold, though it assured investors they were safe, as it wanted to enhance its business.
Now a New York State Supreme Court justice agreed to allow Credit Suisse face a $10 billion lawsuit filed by the state attorney general. Justice Mary Friedman, in a Dec. 24 decision, allowed the suit to head to trial.
A spokeswoman for Schneiderman, Elizabeth DeBold, said the lawsuit is part of an effort to pursue “accountability for those who contributed to the near collapse of our economy.” However, Drew Benson, a spokesman for Credit Suisse, said the bank will appeal the ruling.
Justice Friedman ruled that the lawsuit had been properly filed within a six-year statute of limitations because the underlying claims “seek to impose liability on defendants based on the classic, longstanding common-law tort of investor fraud.”
Flurry of settlements by other banks
As reported by ValueWalk, there has been a flurry of settlements in the recent past, as the Justice Department and other government officials have accelerated their resolutions of big cases against the world’s largest banks. Last year, JPMorgan Chase & Co. announced that it will pay $13 billion for the resolution of all the actual and probable civil claims related to the sale of the RMBS.
In August, Bank of America also agreed to pay $17 billion to resolve civil investigations by federal and state prosecutors, including Schneiderman. In July, Citigroup agreed to pay a $7 billion penalty to settle mortgage-related security claims.
Earlier, several mortgage insurers, including MBIA Inc. and Assured Guaranty Ltd., were perplexed that Credit Suisse had for years not even made provision for potential losses associated with mortgage-backed securities. It was alleged that Credit Suisse’s management selected specific mortgages it knew were going to default to include in a number of securitizations.