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New York state sues Credit Suisse for fraud

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New York state sues Credit Suisse for fraud
11:08 CET+01:00
The state of New York sued Credit Suisse for fraud Tuesday over the sale of questionable mortgage securities that dealt buyers $11.2 billion in losses in the US housing meltdown.

Following a similar suit against JPMorgan Chase in October, New York Attorney General Eric Schneiderman said the Swiss bank deceived investors over the quality of residential mortgage-backed securities (RMBS) that it sold in 2006 and 2007.

The suit said that the bank knew that the RMBS it was selling as quality investments were full of high-risk, subprime home loans that the bank's own traders branded "garbage."

Moreover, Credit Suisse extended financing to the originators of the bad loans which it packaged into RMBS for sale.

The bank was "more focused on keeping a high volume of loans coming to them from originators than they were on keeping defective loans out of the pools of collateral underlying their RMBS," the suit said.

The losses sustained were roughly 12 percent of the total initial value of the securities of nearly $94 billion, and the attorney general's office said it was seeking to recoup the losses for investors.

"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," said Schneiderman in a statement.

The suit came out of a joint RMBS task force looking into the causes of the housing and mortgage securities market meltdown that sparked a national financial crisis and sent the country into deep recession in 2008-2009.

The task force also involves the US Justice Department, the FBI, the Securities and Exchange Commission, the Federal Housing Finance Agency and others.

FHFA inspector general Steve Linick said in a statement that defrauded investors included housing finance giants Fannie Mae and Freddie Mac, which the government was forced to rescue after the market collapsed.

"As victims, Fannie Mae and Freddie Mac have sustained significant losses, which to date have been borne by taxpayers. This lawsuit sends the clear message that reckless lending practices will not be tolerated," Linick said in a statement.

Compared with the October 1st suit against JP Morgan Chase, which appeared to move sooner than New York's task force partners had intended, the action against Credit Suisse had the full backing of the task force.

JPMorgan Chase was sued over $22.5 billion in losses on RMBS issued by the former investment bank Bear Stearns, which JPMorgan Chase acquired during the crisis.

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