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New York state sues Credit Suisse for fraud

The state of New York sued Credit Suisse for fraud Tuesday over the sale of questionable mortgage securities that dealt buyers $11.2 billion in losses in the US housing meltdown.

New York state sues Credit Suisse for fraud

Following a similar suit against JPMorgan Chase in October, New York Attorney General Eric Schneiderman said the Swiss bank deceived investors over the quality of residential mortgage-backed securities (RMBS) that it sold in 2006 and 2007.

The suit said that the bank knew that the RMBS it was selling as quality investments were full of high-risk, subprime home loans that the bank's own traders branded "garbage."

Moreover, Credit Suisse extended financing to the originators of the bad loans which it packaged into RMBS for sale.

The bank was "more focused on keeping a high volume of loans coming to them from originators than they were on keeping defective loans out of the pools of collateral underlying their RMBS," the suit said.

The losses sustained were roughly 12 percent of the total initial value of the securities of nearly $94 billion, and the attorney general's office said it was seeking to recoup the losses for investors.

"This lawsuit against Credit Suisse marks another significant step in our efforts to hold financial institutions accountable for the misconduct that led to the worst financial crisis in nearly a century," said Schneiderman in a statement.

The suit came out of a joint RMBS task force looking into the causes of the housing and mortgage securities market meltdown that sparked a national financial crisis and sent the country into deep recession in 2008-2009.

The task force also involves the US Justice Department, the FBI, the Securities and Exchange Commission, the Federal Housing Finance Agency and others.

FHFA inspector general Steve Linick said in a statement that defrauded investors included housing finance giants Fannie Mae and Freddie Mac, which the government was forced to rescue after the market collapsed.

"As victims, Fannie Mae and Freddie Mac have sustained significant losses, which to date have been borne by taxpayers. This lawsuit sends the clear message that reckless lending practices will not be tolerated," Linick said in a statement.

Compared with the October 1st suit against JP Morgan Chase, which appeared to move sooner than New York's task force partners had intended, the action against Credit Suisse had the full backing of the task force.

JPMorgan Chase was sued over $22.5 billion in losses on RMBS issued by the former investment bank Bear Stearns, which JPMorgan Chase acquired during the crisis.

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CREDIT SUISSE

Probe unearths second spying case at Credit Suisse

An internal Credit Suisse probe confirmed Monday that a second executive had been spied on, following earlier revelations that the bank's former head of wealth management was tailed by private investigators.

Probe unearths second spying case at Credit Suisse
Photo: Depositphotos

But Switzerland's number two bank maintained that just one senior leader, who has since been forced out, was entirely to blame for both incidents and that rest of the top brass had not been aware of the activities. 

Releasing the investigation conducted by the Homburger law firm, Credit Suisse said that “it has been confirmed that Peter Goerke, who was a Member of the Executive Board at the time, was placed under observation by a third-party firm on behalf of Credit Suisse for a period of several days in February 2019.”

The probe was launched following media reports last week that spying at Credit Suisse ran deeper than one case.

The banking giant was shaken by the discovery last September that surveillance had been ordered on star banker and former wealth management chief Iqbal Khan.

READ: Credit Suisse boss resigns following spying scandal

Kahn was tailed after he jumped ship to competitor UBS, sparking fears he was preparing to poach employees and clients.

That revelation came after Khan confronted the private investigators tailing him, leading to a fight in the heart of Zurich. Khan pressed charges.

An initial investigation by Homburger blamed former chief operating officer Pierre-Olivier Bouee, who stepped down, but found no indication chief executive Tidjane Thiam was involved.

The probe results released Monday echoed those findings, concluding that Bouee “issued the mandate to have Peter Goerke put under observation.”

“As was the case with Iqbal Khan, this observation was carried out via an intermediary,” it said, stressing that Bouee “did not respond truthfully” during the initial investigation “when asked about any additional observations and did not disclose the observation of Peter Goerke.”

The new investigation also did not find indications that Thiam or others in the board or management “had any knowledge of the observation of Peter Goerke until media reported on it,” the statement said.

“The Board of Directors considers the observation of Peter Goerke to be unacceptable and completely inappropriate” it said, adding that it had issued an apology to Goerke.

It added that “safeguards” were already in place to avoid future similar misconduct. Switzerland's market watchdog FINMA meanwhile said last week that it was “appointing an independent auditor to investigate Credit Suisse in the context of observation activities.”

“This investigator will clarify the relevant corporate governance questions, particularly in relation to the observation activities,” a statement said Friday.

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