By Karen Freifeld
NEW YORK Nov 20 New York Attorney General Eric
Schneiderman brought a lawsuit on Tuesday accusing Credit Suisse
Group AG of deceiving investors in mortgage-backed
Credit Suisse, Switzerland's second-largest bank,
misrepresented the quality of loans underlying residential
mortgage-backed securities it sponsored and underwrote in 2006
and 2007, leading to $11.2 billion in losses to investors,
according to the lawsuit.
The Zurich-based bank was aware of problems with the loans
it bought, the lawsuit said, but rewarded quantity over quality,
to the dismay of some Credit Suisse staffers.
Credit Suisse encouraged loan originators "to continue
delivering ... crap," the lawsuit said, quoting one bank trader.
The bank failed to adequately evaluate the loans and ignored
defects its limited review did uncover, the lawsuit said. It
also allegedly failed to perform due diligence it promised. The
case was brought under a New York securities fraud statute known
as the Martin Act.
Credit Suisse said it rejected the complaint and looked
forward to presenting its defense in court. The complaint
"recycles baseless claims from private lawsuits and uses an
inaccurate and exaggerated number," the bank said in a
statement, apparently referring to the $11.2 billion loss
The bank announced a management shake-up on Tuesday.
The action is the latest out of a joint federal-state
working group created by President Barack Obama to go after
wrongdoing that led to the 2008 financial crisis.
It "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. He is co-chair of the group.
On Friday, Credit Suisse agreed to pay $120 million to
settle U.S. civil charges that it misled investors in the sale
of risky mortgage bonds prior to the crisis. JPMorgan Chase & Co
, in a separate but similar case, agreed to pay $296.9
million. The banks settled without admitting wrongdoing.
Schneiderman also brought a lawsuit against JPMorgan Chase
last month over mortgage-backed securities packaged and sold by
Bear Stearns & Co, which JPMorgan acquired during the financial
The working group's actions are viewed as a last shot for
the government to hold banks and others responsible for
misconduct in the run-up to the mortgage meltdown.
Credit Suisse, JPMorgan and other banks have already been
sued by pension funds, insurers and others who claim they
misrepresented the quality of mortgages underlying securities.
Schneiderman said on a telephone press conference Tuesday
that the government lawsuits focus on systemic conduct, not
He also said his aim "to protect the market" made the
lawsuit different than relief sought by private litigants.
The lawsuit seeks damages and restitution for investor
losses, and to stop the conduct.
The case is People of the State of New York v. Credit Suisse
Securities, 451802/2012, New York state Supreme Court, New York