Credit Suisse Ordered to Face $10B Mortgage-Backed Securities Fraud Lawsuit by NY AG

A New York State Supreme Court justice says that Credit Suisse Group AG (CSGN) must face a $10 billion securities lawsuit accusing the bank of mortgage-backed securities fraud. Justice Marcy Friedman refused to dismiss the case, saying that a trial will take place. She said that the state has shown that the Swiss financial institution may have engaged in misconduct.

New York sued Credit Suisse in 2012, accusing it of misrepresenting the risks involved in investing in mortgage-backed securities. The bank tried to claim that the state missed the three-year deadline it had for filing such a claim. NY, however, countered that it had six years to pursue its claim.

The state’s Attorney General, Eric Schneiderman, has been going after banks while helping beleaguered homeowners and trying to keep the number of foreclosures from going up. His office has used the Martin Act, which is the NY’s anti-fraud statute to make its cases. Under that law, it is illegal for sellers to make false promises about the securities they are selling. Schneiderman contends that Credit Suisse told investors that the mortgage securities were safe even though the bank knew that the residential loans backing them had “”pervasive flaws.”

In a similar case filed by the NY AG, JPMorgan Chase & Co. (JPM) agreed to a $13B MBS fraud settlement in 2013. $613M of that went to the state. Earlier this year, Citigroup (C) consented to pay $7 billion to resolve similar claims made by NY, other states, and the federal government. Not long after Bank of America (BAC) reached a $17 billion civil settlement, also with a number of state regulators, including Schneiderman’s office, and federal prosecutors.

New York’s Top Cop Scores as Credit Suisse Faces $10 Billion Mortgage Fraud Suit
, Bloomberg, December 26, 2014

New York General Business Law article 23-A

JPMorgan agrees $13 billion settlement with U.S. over bad mortgages, Reuters, November 19, 2014

Citigroup to Pay $7 Billion in Mortgage Probe, The Wall Street Journal, July 14, 2014

Bank of America to Pay $16.65 Billion in Historic Justice Department Settlement for Financial Fraud Leading up to and During the Financial Crisis, Justice.gov, August 21, 2014

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Ex-California Insurer Charged with Running $11M Ponzi Scam, Stockbroker Fraud Blog, December 8, 2014

Morgan Stanley Fined $4M by the SEC for Market Access Rule Violation, Institutional Investor Securities Blog, December 11, 2014