RMBS Working Group Files Suit against Credit Suisse

by devteam November 21st, 2012 | Share

At a press conference Tuesday afternoonrnNew York State Attorney General Eric T.rnSchneiderman announced he had filed a second complaint against a financialrninstitution since the creation of the federal Residential Mortgage-BackedrnSecurities Working Group.  The complaintrnwas filed against Credit Suisse Securities (USA) LLC and its affiliates forrnmaking fraudulent misrepresentations and omissions to promote the sale ofrnresidential mortgage­-backed securities (RMBS) to investors. </p

Accordingrnto the complaint, Credit Suisse led its investors to believe that the qualityrnof the loans in its mortgage-backed securities had been carefully evaluated andrnwould be continuously monitored. In fact, as in the case of other RMBS marketrnparticipants, Credit Suisse did neither. Instead, it systematically failed tornadequately evaluate the loans, ignored defects that its limited review didrnuncover, and kept its investors in the dark about the inadequacy of its reviewrnprocedures and defects in the loans. The loans in Credit Suisse’srnmortgage-backed securities included many that had been made to borrowers whornwere unable to repay the loans, were very likely to default, and ultimately didrndefault in large numbers.  Schneidermanrnsaid the bank had consistently put its relationships with lenders before itsrnobligations to investors. </p

Duringrnthe 2006-2007 period covered by the complaint Credit Suisse packaged $93.8 billionrnin loans which have now suffered losses of approximately $11.2 billion.  Schneiderman said the Credit Suisserninvestigation started last June and has involved dozens of witnesses and over arnmillion pages of documents.  The complaintrnseeks investor damages to recoup these losses, as well as other equitablernrelief. <br /<br /The charges were brought under New York State's Martin Act.  The New York Office had earlier filed arnsimilar suit against JPMorgan Chase.</p

ThernAttorney General said the suit was different from earlier actions brought byrnindividuals against the bank in that it was a platform case.  As such it did not involve one or more individualrnoffenses but rather the entire way in which Credit Suisse did business duringrnthe time frame.</p

Arnreporter questioned the Attorney General’s statement that Credit Suisse hadrnfavored originators.   Schneiderman said that internal emails andrninformation from third party due diligence companies confirm an internal battlernat the bank with the conduit department pushing the bad loans and overridingrncomplaints from other divisions of the bank. rn”It was a sellers’ market,” he said, “banks were bidding against eachrnother and wanted to keep their relationships with the originations.   Some of them,” he added, “were among thernworse in the country.</p

Herntold reporters that the fact that no individual or criminal charges have yetrnbeen brought by the working group does not foreclose the possibility they mayrnbe.  While the statute of limitations isrnan issue, there are a variety of ways to extend them including a tollingrnagreement with some of the banks.

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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