Credit Suisse loses bid to dismiss mortgage case
Kevin McCoy, USA TODAY 12:29 p.m. EST December 26, 2014
Credit Suisse has lost an initial legal effort to dismiss a New York lawsuit that accuses the Swiss banking giant of fraud in selling residential mortgage-backed securities before the national recession.
New York Supreme Court Justice Marcy Friedman denied the motion, concluding in a Wednesday ruling that many of the bank's arguments against the lawsuit filed in 2012 by New York Attorney General Eric Schneiderman's office were "without merit."
Schneiderman argued in his initial court complaint that Credit Suisse led investors to believe the bank "had carefully evaluated — and would continue to monitor — the quality of the loans underlying their" residential mortgage-backed securities.
"In fact, defendants systematically failed to adequately evaluate these loans, and kept investors in the dark about the inadequacy of their review procedures," the lawsuit alleged.
Friedman's threshold-level ruling in a case that ultimately could find Credit Suisse liable for billions of dollars in damages allows the matter to go forward as both sides marshal additional evidence and legal arguments.
The bank, Switzerland's second-largest, said it would "appeal this particular decision and continue to defend ourselves in this case," Bloomberg News reported.
Credit Suisse had argued that the New York case should be dismissed because the statute of limitations had expired before the lawsuit was filed. The bank also contended that the state's allegations were preempted by the Federal National Securities Market Improvement Act of 1996 and argued that Schneiderman's office had failed to state a legal cause of action.
Friedman ruled that the lawsuit had been properly filed within a six-year statute of limitations because the underlying claims "seek to impose liability on defendants based on the classic, longstanding common-law tort of investor fraud."
The decision similarly rejected the bank's other claims. Schneiderman filed the action under New York's Martin Act, which gives the attorney general's office "broad regulatory and remedial powers to prevent fraudulent securities practices by investigating and prosecuting claims," Friedman wrote in the 17-page ruling.
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