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SEC Subpoenas Credit Suisse Over Mortgages, MBIA Says

Credit Suisse Subpoenaed in Mortgage Probe, MBIA Says
A tram passes the Credit Suisse AG company headquarters in Zurich. Photographer: Gianluca Colla/Bloomberg

The U.S. Securities and Exchange Commission subpoenaed Credit Suisse Group AG seeking documents related to mortgage debt, bond insurer MBIA Insurance Corp. said in a court filing as it seeks information as part of a lawsuit against three of the bank’s units.

“Credit Suisse is now the subject of an investigation by the Securities and Exchange Commission, which issued a subpoena this week seeking the same types of documents as MBIA seeks with this motion,” the bond insurance unit of Armonk, New York-based MBIA Inc., said in the filing in New York State Supreme Court. The document, dated April 29, was filed today.

Steven Vames, a Credit Suisse spokesman in New York, declined to comment on MBIA’s statement about an SEC investigation. SEC spokesman John Nester declined to comment.

U.S. investigators have been scrutinizing companies involved in the mortgage business before the worst collapse in home prices since the Great Depression.

The Justice Department this week sued Deutsche Bank AG for more than $1 billion, saying the firm lied while arranging federal insurance on faulty mortgages.

MBIA alleges in its case that Zurich-based Credit Suisse failed to repurchase soured mortgages out of a 2007 securitization as contractually required. That was true even as the bank obtained funds from the originators of the loans over similar demands that the lenders buy back the debt, MBIA said.

Bear Stearns, Ambac

The allegations echo charges unveiled in January against Bear Stearns Cos. in a suit by bond insurer Ambac Assurance Corp., in a case against the defunct investment bank and JPMorgan Chase & Co., which bought Bear Stearns in 2008.

Credit Suisse in an April 29 filing in MBIA’s case said that contracts for its mortgage-bond transaction failed to call for the bank to repurchase loans simply because they went delinquent within a few months or involved borrower fraud, differing from contracts between lenders and Credit Suisse.

Credit Suisse cited e-mails from its employees and MBIA officials before the deal closed in which the bank explicitly stated that those so-called representations and warranties wouldn’t be made.

“MBIA is entitled to what its contracts with CS provide, and not more,” Vames, the Credit Suisse spokesman, said today in an e-mail.

MBIA said in its filing today that Credit Suisse demanded some repurchases by lenders for issues covered by its own contracts, and that early loan defaults should have been seen as “red flags” for further reviews.

The case is MBIA Insurance Corp. v. Credit Suisse Securities (USA) LLC, 603751/2009, New York State Supreme Court (Manhattan).

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