UPDATE 2-CIBC faces lawsuit over subprime exposure

(Recasts, updates with closing share price)

TORONTO, July 23 (Reuters) - Canadian Imperial Bank of Commerce CM.TO is the first Canadian bank to face legal action over investments tied to plunging U.S. subprime mortgages, after a Toronto law firm revealed a proposed class action on Wednesday, claiming the bank and some executives failed to fully disclosure its exposure.

The lawsuit, filed in an Ontario court, alleges that the bank, President and Chief Executive Gerald McCaughey and other officers and directors, did not disclose the extent of CIBC’s total exposure, through various structured-credit securities, to the sliding U.S. subprime mortgage market.

Their alleged misrepresentations artificially boosted the bank’s share price, according to the 79-page claim, which was filed on Tuesday.

The allegations have not been proven in court.

CIBC, Canada’s fifth-largest bank, has taken writedowns of C$6 billion ($6 billion) over the last two quarters as the value of various complex securities and hedges plunged in the wake of the U.S. subprime mortgage crisis.

The bank denied the allegations and said it would “vigorously” defend itself.

“CIBC is confident that, at all times, its conduct was appropriate and that its disclosure met applicable requirements,” bank spokesman Rob McLeod said.

The suit, which has to be certified by the court to become a class action, alleges that CIBC executives misrepresented the magnitude and level of risk associated with its U.S. subprime mortgage investments, which had the effect of “artificially inflating” CIBC’s stock in the period from May 31, 2007, to Feb. 28, 2008.

Law firm Rochon Genova LLP is representing the plaintiff, businessman Howard Green of Thornhill, Ontario, and prospective class members.

CIBC has been hurt by the subprime mortgage crisis far more than its Canadian peers, and its stock is down more than 10 percent this year, following a 28 percent slide in 2007.

But shares of CIBC and other banks have rallied in the past week. Despite news of the suit, CIBC jumped 5 percent to close at C$63.11 on Wednesday on the Toronto Stock Exchange.

Some analysts expect the bank to write down at least another C$1 billion -- possibly more -- in the current quarter ending July 31 because of credit-rating downgrades at bond insurers that were to have hedged some of its positions.

Litigation stemming from the subprime mortgage meltdown is routine in the United States, where new cases were brought at a rate of nearly two a day in the first three months of 2008, according to a study by Navigant Consulting Inc released in April.

That report said there were 170 subprime-related civil cases filed in U.S. federal courts in the first quarter.

$1=$1.01 Canadian Reporting by Lynne Olver; editing by Rob Wilson