STMicro sues Credit Suisse over auction-rate debt

SAN FRANCISCO (Reuters) - Credit Suisse has been sued by STMicroelectronics NV for allegedly 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, STMicro said in an August 6 complaint filed in federal court in Brooklyn, New York.

Europe's biggest computer-chip maker alleges Credit Suisse instead 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.

"We do not comment on meritless lawsuits," said Credit Suisse spokesman David Walker in New York. An STMicro official could not immediately be reached to comment.

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.

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's lawsuit comes as Citigroup Inc agreed on Thursday 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, Merrill Lynch & Co and others following February's meltdown of the $330 billion auction-rate market.

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.

(Reporting by Duncan Martell, with additional reporting by Dan Wilchins in New York; Editing by Braden Reddall)