Credit Suisse, which last week agreed to settle U.S. claims that it misled mortgage-bond investors, committed “multiple fraudulent and deceptive acts” in promoting and selling the securities, Schneiderman’s office said in a complaint filed yesterday in New York State Supreme Court.
“This lawsuit against Credit Suisse marks another significant step in our efforts to hold financial institutions accountable for the misconduct that led to the worst financial crisis in nearly a century,” Schneiderman said in a statement.
The lawsuit is an enforcement action by a state-federal task force established earlier this year to investigate misconduct in the bundling of mortgage loans into securities before the housing bust. Schneiderman is co-chairman of the group, which includes officials from the U.S. Justice Department and the Securities and Exchange Commission.
“We firmly reject this complaint, which recycles baseless claims from private lawsuits and uses an inaccurate and exaggerated number,” Jack Grone, a spokesman for Zurich-based Credit Suisse, said in a statement. “We look forward to presenting our defense in court.”
Schneiderman in October sued JPMorgan Chase & Co. (JPM) alleging that Bear Stearns, the investment bank JPMorgan acquired in 2008, defrauded investors. Bear Stearns engaged in “systemic fraud” by failing to evaluate loans backing securities and ignoring defects, the state said.
The attorney general said on a conference call with reporters that the state-federal task force’s investigations continue.
“We still have a long way to go,” he said. “I’m looking forward to working with our partners on further cases. There are other institutions that are being scrutinized. We’re a long way from wrapping this up.”
The SEC said Nov. 16 that JPMorgan and Credit Suisse agreed to pay more than $400 million to settle regulatory claims they misled investors.
JPMorgan resolved claims that it made misstatements about delinquency data for loans packaged into securities and that Bear Stearns didn’t tell mortgage investors it kept reimbursements on soured loans, the SEC said in a statement. The SEC also faulted Credit Suisse (CSGN) for disclosures on reimbursements.
According to the attorney general’s complaint, Credit Suisse led investors to believe that it had carefully evaluated and would monitor the quality of loans backing their securities. The bank, in fact, “systematically failed” to adequately review the loans and “kept investors in the dark” about review procedures, the state said.
Credit Suisse knew there were “pervasive flaws” in the screening process and was more focused on maintaining a high volume of loans from originators than keeping defective mortgages out of the pools of loans, according to Schneiderman’s complaint.
Investors have incurred losses of about $11 billion in mortgage securities sponsored and underwritten by Credit Suisse in 2006 and 2007, according to the state.
The case is People of the State of New York v. Credit Suisse Securities (USA) LLC, 451802-2012, New York State Supreme Court (Manhattan).