New Jersey has filed a case against Credit Suisse Securities (USA) and two of its affiliates, clamming that they offered more than $10bn in faulty residential mortgage backed securities (RMBS) that busted later.
The lawsuit filed in the Superior Court of New Jersey also names two affiliates, Credit Suisse First Boston Mortgage Securities Corp and DLJ Mortgage Capital.
New Jersey acting attorney general John Hoffman accused the bank for misrepresenting the risks involved in the investments, and failing to disclose to investors information about significant risks in the offerings.
Further, Credit Suisse failed to disclose that it had not followed underwriting guidelines, which have been designed to ensure that the mortgage loans underlying its securities trusts were made in accordance with appropriate lending guidelines.
It also did not provide any information to investors that numerous loan originators had poor track records of defaults and delinquencies, and some had even been suspended from doing business with Credit Suisse, according to the lawsuit filed on behalf of the Bureau of Securities.
The bank received tens of millions of dollars in settlement with loan originators arising out of defective loans, but did not pass those funds along to the trusts that actually owned the loans.
Acting Attorney General Hoffman said, "The kind of conduct described in this lawsuit is the kind of conduct that helped put the nation in financial crisis, with loan originators and investment banking firms abandoning prudent lending guidelines in order to generate quick profits."
"Ultimately, it was consumers who suffered the harm caused by these reckless lending practices, and by the misrepresentations used to make these doomed investments seem attractive. This kind of conduct cannot, and will not, be tolerated," Hoffman added.
In response to the lawsuit, Credit Suisse said that the New Jersey’s complaint is meritless. "It recycles baseless claims and uses inaccurate and exaggerated figures. We look forward to presenting our defense in court," a Credit Suisse spokesman said in a statement.
Image: Credit Suisse headquarters in Zürich (Paradeplatz). Photo courtesy of Giorgia Xenakis.