STMicro sues Credit Suisse over auction-rate debt

SAN FRANCISCO, Aug 7 (Reuters) - Credit Suisse (CSGN.VX) has been sued by STMicroelectronics NV (STM.PA) for placing $450 million of the chipmaker's cash into auction-rate securities without its authorization.

STMicro had thought the cash would be invested by Switzerland's second-biggest bank in highly liquid and secure investments, in this case U.S. government-backed student loans, Europe's biggest computer-chip maker said in an Aug. 6 complaint filed in federal court in Brooklyn, New York.

But instead, STMicro alleges Credit Suisse bought illiquid, risky and unsuitable auction rate securities consisting of collateralized debt obligations and credit-linked notes, some of which were backed by subprime real estate loans, the chipmaker said in its complaint.

The lawsuit filed by STMicro comes as Citigroup Inc on Thursday agreed to buy back more than $7 billion of illiquid auction-rate securities and pay a $100 million fine to settle charges it fraudulently misled investors about the debt's risk.

That agreement with New York Attorney General Andrew Cuomo and the U.S. Securities and Exchange Commission could pave the way for settlements with UBS AG (UBSN.VX), Merrill Lynch & Co MER.N and others following February's meltdown of the $330 billion auction-rate market.

Auction-rate debt bears interest rates that reset through periodic auctions typically held every seven, 28 or 35 days. Once thought safe, much of that market has been frozen since Wall Street brokerages stopped supporting the debt.

STMicro claimed in its lawsuit that "at least a dozen other multinational corporations are victims of the same scheme carried out by the same group of brokers and directors at Credit Suisse Securities and furthered by Credit Suisse Group."

STMicro said it believed more than $2 billion of these clients' money ended up invested in auction-rate securities.

After STMicro discovered its cash had not been invested as it had believed and confronted Credit Suisse about it, "Credit Suisse told ST that if it attempted to force Credit Suisse to return its money through legal proceedings, Credit Suisse would make the process painful and embarrassing for ST," according to the complaint.

Officials for Credit Suisse and STMicro could not immediately be reached for comment. (Reporting by Duncan Martell; Editing by Braden Reddall)