NY sues Credit Suisse over mortgages

Attorney-General says he has time to sue ‘other institutions’

The New York attorney-general said he had plenty of time to sue “other institutions” for fraud in mortgage-related wrongdoing as he alleged Credit Suisse committed “fraudulent misrepresentation” in selling mortgage-backed securities.

Pointing to a law that has a 10-year statute of limitations, Eric Schneiderman said the investigation into misbehaviour in the run-up to the 2008 financial crisis was “a long way from wrapping up” and more institutions were being probed.

Mr Schneiderman on Tuesday filed a complaint in New York State Supreme Court alleging that Credit Suisse deceived investors in residential mortgage-backed securities which later incurred more than $11.2bn in losses. The Financial Times reported on Monday that the action was imminent.

The claims concern mortgages that Credit Suisse packaged into more than 60 mortgage-backed securities and sold to investors. In some securitisations, about 30 per cent of the loans ultimately went into default. Overall, investors have incurred losses on about 12 per cent of $93bn in loans.

Credit Suisse strongly rejected the allegations. “We firmly reject this complaint which recycles baseless claims from private lawsuits and uses an inaccurate and exaggerated number,” the bank said, referring to the $11.2bn loss estimate. “We look forward to presenting our defence in court.”

The complaint alleges that Credit Suisse led investors in MBS to believe that the quality of the underlying loans had been carefully evaluated and would be continuously monitored.

“Instead, it systematically failed to adequately evaluate the loans, ignored defects that its limited review did uncover, and kept its investors in the dark about the inadequacy of its review procedures and defects in the loans,” the complaint said.

The action follows a similar case brought by Mr Schneiderman against JPMorgan Chase and separate cases related to mortgage practices against both JPMorgan and Credit Suisse by the Securities and Exchange Commission.

In a letter reviewed by the FT, the SEC wrote to Credit Suisse on Monday to tell them its investigation into similar issues was closed. Banks have been angered that separate agencies are pursuing them for similar alleged wrongdoing.

The complaint relates to behaviour in 2006 and 2007. Years on, there have been concerns about the pace of investigations and whether regulators and law enforcement agencies might run out of time.

But Mr Schneiderman said his office – and a presidential working group that brings together various agencies – had the tools to bring further cases, noting the 10-year statute of limitation on one law, 1989 Financial Institutions Reform, Recovery and Enforcement Act. “We still have a long way to go,” he said.

Banks including JPMorgan have publicly criticised the wave of action as borrowing heavily from private litigation.

Mr Schneiderman said he was “not going to waste the taxpayers’ money” by ignoring previous work by private claimants. But he said more than 1m documents had been reviewed for the Credit Suisse complaint and more than a dozen witnesses interviewed.

Copyright The Financial Times Limited 2016. All rights reserved. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.

More on this topic

Suggestions below based on Credit Suisse Group