The Avanti Law Group: Credit Suisse Waits for $11 Billion Answer in N.Y. Fraud Suit

The Avanti Law Group: Credit Suisse Waits for
$11 Billion Answer in N.Y. Fraud Suit
Feb. 19 (Bloomberg) -- As Credit Suisse
Group AG sees it, time has run out on
New York Attorney General Eric
Schneiderman’s pursuit of Wall Street
banks for mortgage fraud that helped
trigger the financial crisis.
Schneiderman sued Credit Suisse in 2012
as part of a wide- ranging probe into
mortgage bonds. He claimed
Switzerland’s second-largest bank
misrepresented the risks associated with
$93.8 billion in mortgage-backed
securities issued in 2006 and 2007.
Credit Suisse asked a Manhattan judge in December to dismiss Schneiderman’s case, as well as his
demand for as much as $11.2 billion in damages. The bank argued that New York, by waiting so long
to file the lawsuit, missed a three-year legal deadline for suing. The state countered that it had six
years to file its complaint.
If the bank wins, Schneiderman will face a new roadblock as he considers similar multibillion-dollar
claims against a dozen other Wall Street firms. The judge in New York State Supreme Court could
rule at any time.
“It would obviously tilt everything in the favor of Credit Suisse and similarly situated financial
institutions,” said David Reiss, a professor at Brooklyn Law School, hindering New York’s remaining
efforts to hold banks accountable for mistakes that spurred a recession.
Obstacles Posed
The obstacle posed by such statutes of limitation in pursuing mortgage-bond cases may be traced
back to Andrew Cuomo, Schneiderman’s predecessor. Although now-Governor Cuomo didn’t file
any such cases against the banks, he announced a probe into all aspects of the mortgage business in
2008.
In doing so, he may have started the clock ticking on how long a state suit could be filed, making it
impossible for fellow Democrat Schneiderman to argue his office didn’t learn of the bank’s conduct
until he took office in 2011.
On Feb. 6, Credit Suisse said it was setting aside 514 million Swiss francs ($568 million) for legal
issues, including 339 million francs for mortgage litigation. The bank may be preparing to resolve a
related bond insurer lawsuit, Mark Palmer, an analyst with BTIG LLC in New York, said in a Feb. 10
note.

Matt Mittenthal, a spokesman for Schneiderman, and Dani Lever, a spokeswoman for Cuomo,
declined to comment on the Credit Suisse case.
Filing Deadline
Schneiderman, 59, avoided a filing deadline dispute by settling a mortgage-bond case with
JPMorgan Chase & Co. last year. The state got $613 million in that pact, New York’s share of the
landmark $13 billion federal-state accord with the largest U.S. lender.
Armed with the Martin Act, New York’s powerful anti-fraud tool, Schneiderman has said he is
seeking settlements with the other, unidentified banks.
In the lawsuit against Zurich-based Credit Suisse, filed in November 2012, he claims the bank
ignored warning signs about the quality of loans it was packaging and selling. One example cited
was its use of New Century Financial Corp. mortgages after that firm’s 2007 bankruptcy.
The attorney general’s lawsuit involves 64 Credit Suisse bond offerings in 2006 and 2007. Credit
Suisse has said the losses on those offerings were only about half of the $11.2 billion claimed by
Schneiderman.
One Credit Suisse executive described some of the mortgages the bank sold as “complete and utter
garbage,” according to the complaint. The bank relied on mortgage originators that “systematically
abandoned underwriting standards in the years leading up to the collapse of the housing market,”
Schneiderman said.
Thrown Out
Credit Suisse, which denies any wrongdoing, told Justice Marcy S. Friedman Dec. 11 that the suit
should be thrown out because it was filed more than three years after the alleged wrongdoing was
discovered.
Consumer fraud and personal injury claims are generally subject to a three-year statute of
limitations under New York law, while financial frauds can be granted six years.