Credit Suisse in $70 million accord over subprime risk

NEW YORK (Reuters) - Credit Suisse Group AG has agreed to pay $70 million to settle U.S. litigation accusing the Swiss bank of misleading investors about its subprime exposure and ability to limit losses.

The settlement also covers several executives, including Chief Executive Brady Dougan. It allows recovery for investors who bought Credit Suisse’s American depositary shares, and U.S. investors who bought Credit Suisse securities in Switzerland, between February 15, 2007 and April 14, 2008, court papers show.

It resolves one of many securities fraud cases against banks to arise from the 2007 and 2008 financial crises.

“Many lawsuits that grew out of the financial crisis have been dismissed, and we are pleased to have obtained a significant recovery” for investors, said Beth Kaswan, a partner at Scott & Scott LLP who represents the plaintiffs. “To the extent the defendants wanted total peace with respect to those purchasers, the settlement accomplishes that.”

Credit Suisse denied wrongdoing in agreeing to settle. A bank spokesman, Duncan King, declined to comment.

The case had its origin in early 2008.

On February 19 of that year, Credit Suisse took a $2.85 billion write-down and suspended some traders who overstated the value of some assets. Its shares fell 6.6 percent that day.

Then on March 20, Credit Suisse said write-downs would contribute to a surprise first-quarter loss, and its shares fell 6.4 percent.

Credit Suisse’s 2007 annual report cited a “material weakness” in internal controls over financial reporting.

Investors accused Credit Suisse of having previously falsely represented that its risk management and controls helped it successfully limit subprime exposure and losses.

Thursday’s settlement followed mediation and requires court approval, papers filed in Manhattan federal court show.

Some investors had been dismissed earlier from the case, including foreign buyers of the bank’s stock in Switzerland.

U.S. buyers of that stock, including co-lead plaintiff Louisiana Municipal Police Employees Retirement System, were also dismissed after a June 2010 U.S. Supreme Court ruling that limited investors’ ability to use federal courts to raise fraud claims over the purchase of foreign securities.

But that dismissal was not certified as “final,” and the U.S. buyers are included in the settlement, court papers show.

Other defendants included a Credit Suisse chief financial officer and chief risk officer, and the estate of Paul Calello, who had overseen investment banking. Calello died in November.

The case is Cornwell v. Credit Suisse Group et al, U.S. District Court, Southern District of New York, No. 08-03758.

Editing by John Wallace, Steve Orlofsky and Richard Chang