Credit Suisse Group AG lost a bid to dismiss a lawsuit filed by Elbit Systems Ltd., after a federal judge in New York said the Israeli defense contractor provided sufficient information to claim the bank aided and abetted the crimes of former brokers Julian Tzolov and Eric Butler.
Both men were convicted of fraudulently selling subprime securities to corporate clients that cost investors more than $1.1 billion in losses. Prosecutors said the two men falsely told clients the products were backed by federally guaranteed student loans and were a safe alternative to bank deposits or money market funds.
Elbit, Israel’s biggest non-government developer of defense technology, filed suit in U.S. District Court in Manhattan in 2010. Elbit seeks to hold Credit Suisse liable for the conduct of the two brokers, alleging that the bank’s role in the aftermath “was to keep the fraudulent scheme hidden from the public, the federal authorities and from the victims themselves, for as long as possible.”
“Elbit has adequately alleged that Credit Suisse Group aided and abetted common law fraud,” U.S. District Judge Sidney Stein said today in a ruling. “Elbit has adequately alleged that Credit Suisse Group may be held liable as an aider and abettor of Credit Suisse Securities,” said the judge.
Butler was convicted after a trial in federal court in Brooklyn, New York, in 2009 while Tzolov, his partner, pleaded guilty and testified against him at trial. Both men were sentenced to serve five years in prison.
Jack Grone, a spokesman for Zurich-based Credit Suisse, declined to comment on the ruling.
The civil case is Elbit Systems Ltd. v. Credit Suisse Group, 10-CV-10, U.S. District Court, Southern District of New York (Manhattan). The criminal case is U.S. v. Tzolov, 08-cr-370, U.S. District Court, Eastern District of New York (Brooklyn).