Credit Suisse Officials Accused of Telling Staff to Ignore Due Diligence Standards, Accept Questionable Loans Involving

According to documents filed by Credit Suisse (CS) in Massachusetts state court, reports The New York Times, top officials at the financial firm encouraged subordinates to ignore due diligence standards and approve questionable loans that ended up packaged into mortgage investments. Also included in the papers are finding that there were internal audits showing that activities at the mortgage unit got progressively worse in 2004 and the firm knew it could end up being exposed to higher risks as a result. The documents are part of a mortgage securities case in which Credit Suisse is a defendant.

In this mortgage securities lawsuit, brought nearly four years ago, Cambridge Place Investment Management is seeking $1.8 billion in damages on about 200 mortgage securities that it purchased from over a dozen banks leading up to the economic crisis. The asset management company has settled with most of the banks, with Credit Suisse among the few exceptions.

Issuing a statement, a spokesperson for Credit Suisse said that the firm felt confident that the evidence in its totality would demonstrate that its due diligence practices were dependable and healthy. However, the documents, once confidential, are causing some to wonder why the bank decided to combat rather than settle the different mortgage securities cases filed against it, including those submitted by the New York attorney general and the Federal Housing Finance Agency.

While the housing market was booming, Credit Suisse bundled about $203 billion of mortgages into securities that it then sold to private investors between 2005 and 2007. Now, Credit Suisse is under scrutiny. In 2013, ex-Credit Suisse mortgage trader Kareem Serageldin was found guilty of concealing over $100 million in mortgage bond losses at the firm. He did this by inflating the value of the bonds at the housing market failed.

In February, four of the banks’ leading executives testified in front of Congress about the firm’s role in helping US citizens conceal their money abroad so they wouldn’t have to pay taxes. Earlier this month, US senators blamed the Justice Department for obtaining just 238 of the 22,000 names of Americans with credit Suisse accounts.

Credit Suisse may have helped these account holders hide up to $10 million. Meantime, prosecutors and Credit Suisse are still working out a settlement that would compel the firm to give over more names of account holders and end the investigation. There will likely be a deferred prosecution deal after any charges that are filed and the bank is expected to pay a fine.

Our mortgage-backed securities lawyers represent investors with securities claims against banks and their financial representatives. Many investors sustained losses as a result of broker negligence—especially during the 2008 financial crisis. Our securities fraud law firm represents institutional and individual investors.

Credit Suisse Documents Point to Mortgage Lapses, The New York Times, March 10, 2014

Credit Suisse U.S. Clients in Limbo as Probe Inches Ahead, Bloomberg, March 7, 2014

More Blog Posts:
Credit Suisse Admits Wrongdoing and Will Pay $196M to Settle SEC Charges That It Provided Unregistered Services to US Customers, Stockbroker Fraud Blog, February 22, 2014

Credit Suisse Could Settle with US Over Tax Evasion Allegations for Over $800M, Institutional Investor Securities Blog, January 18, 2014

UBS’s Anticipated Defenses in the UBS Puerto Rico Fund Cases, Stockbroker Fraud Blog, January 21, 2014