Credit Suisse Wants Appeals Court to Dismiss NY AG’s $11.2B Residential Mortgage-Backed Securities Fraud Lawsuit

A number of Credit Suisse Group (GS) units want a NY court to rule that the RMBS case brought by Attorney General Eric Schneiderman is time-barred in the wake of precedent from the state’s highest court. The AG, who brought the case under the Martin Act, is seeking more than $11.2B.

According to the complaint, in ’06 and ’07 Credit Suisse put together over 60 residential mortgage-backed securities with about 248,000 loans. 24% of the loans have since been liquidated and investors have lost $11.2B on initial balances of about $93.8B. The state claims that investor losses resulted because of the bank’ determination to raise the volume of mortgages it bought and the securities it generated. Credit Suisse employees purportedly paid a higher price for mortgages and didn’t address reports of problems identified by due diligence forms so as to preserve relationships with mortgage originators. The bank is accused of making false claims about due diligence when choosing which mortgages to bundle with the securities.

The NY AG contends that the bank ‘deceived investors” about the quality of mortgages in the RMBS and the extent to which Credit Suisse actually examined them before and after the securities were sold, which was before the housing bubble dissolved in 2008. Schneiderman also invoked New York’s Executive Law 63(12), which is a fraud statute, when filing his RMBS fraud lawsuit against the bank.

It was in 2014 that NY Supreme Court Judge Marcy Friedman said she would not dismiss the lawsuit. Friedman said that the six-year limitations, and not the three-year one, applied. Now, Credit Suisse’s defense team is arguing that the three-year statute applies to statutory claims that impose liability, unlike the six-year statute which it contends only applies to statutory claims that implement or codify a common-law liability that already exists. The firm pointed to Gaidon v. Guardian Life Insurance Co., the 2001 ruling issued by New York’s Court of Appeals—the state’s highest court—which established that the three-year statute was applicable in that case.

Schneiderman’s lawyer countered that the bank misinterpreted the ruling in Gaidon and that this lawsuit is over a fraud claim and not a deceptive practice issue. The lawyer also noted that in Gaidon, no material misrepresentation was claimed unlike in this lawsuit brought against Credit Suisse. The NY AG also argued that State v. Bronxville Glen I Assocs. , a fraud case brought under the Martin Act, was upheld to the six-year statue.

In other news, Credit Suisse has just reached a $29 M settlement with the National Credit Union Administration in another RMBS lawsuit. The deal settles claims related to losses sustained by Members United and Southwest corporate credit unions that bought RMBS for over $228.M between ’06 and ’07. Another RMBS case against Credit Suisse over the sale of defect RMBS in Kansas has yet to be resolved.

The SSEK Partners Group represents high net worth individuals and institutional investor clients. If you believe you may have grounds for a RMBS fraud lawsuit or claim, contact us today.

Credit Suisse Looks to Nix NY AG’s $11.2B RMBS Suit, Law360, March 29, 2016

Read the Complaint (PDF)