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RMBS Working Group Files Suit against Credit Suisse
At a press conference Tuesday afternoon
New York State Attorney General Eric T.
Schneiderman announced he had filed a second complaint against a financial
institution since the creation of the federal Residential Mortgage-Backed
Securities Working Group. The complaint
was filed against Credit Suisse Securities (USA) LLC and its affiliates for
making fraudulent misrepresentations and omissions to promote the sale of
residential mortgage-backed securities (RMBS) to investors.
to the complaint, Credit Suisse led its investors to believe that the quality
of the loans in its mortgage-backed securities had been carefully evaluated and
would be continuously monitored. In fact, as in the case of other RMBS market
participants, Credit Suisse did neither. 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 loans in Credit Suisse's
mortgage-backed securities included many that had been made to borrowers who
were unable to repay the loans, were very likely to default, and ultimately did
default in large numbers. Schneiderman
said the bank had consistently put its relationships with lenders before its
obligations to investors.
the 2006-2007 period covered by the complaint Credit Suisse packaged $93.8 billion
in loans which have now suffered losses of approximately $11.2 billion. Schneiderman said the Credit Suisse
investigation started last June and has involved dozens of witnesses and over a
million pages of documents. The complaint
seeks investor damages to recoup these losses, as well as other equitable
The charges were brought under New York State's Martin Act. The New York Office had earlier filed a
similar suit against JPMorgan Chase.
Attorney General said the suit was different from earlier actions brought by
individuals against the bank in that it was a platform case. As such it did not involve one or more individual
offenses but rather the entire way in which Credit Suisse did business during
the time frame.
reporter questioned the Attorney General's statement that Credit Suisse had
favored originators. Schneiderman said that internal emails and
information from third party due diligence companies confirm an internal battle
at the bank with the conduit department pushing the bad loans and overriding
complaints from other divisions of the bank.
"It was a sellers' market," he said, "banks were bidding against each
other and wanted to keep their relationships with the originations. Some of them," he added, "were among the
worse in the country.
told reporters that the fact that no individual or criminal charges have yet
been brought by the working group does not foreclose the possibility they may
be. While the statute of limitations is
an issue, there are a variety of ways to extend them including a tolling
agreement with some of the banks.
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