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.
No comments:
Post a Comment