Credit Suisse Group has been ordered to face a $10 billion lawsuit by New York’s attorney general accusing the Swiss bank of fraud in the sales of mortgage-backed securities before the 2008 financial crisis.
A New York State Supreme Court justice rejected the bank’s request to dismiss the case, a move that gives leverage to Attorney General Eric Schneiderman to demand internal bank documents and force a settlement. New York demonstrated the bank may have engaged in misconduct, Justice Marcy Friedman said in a Dec. 24 decision, allowing the suit to head toward trial.
In addition to forcing Zurich-based Credit Suisse to defend itself or settle, the ruling may strengthen Schneiderman’s hand in punishing other banks for bad behavior tied to the recession.
Elizabeth DeBold, a spokeswoman for Schneiderman, said the lawsuit is part of an effort to pursue “accountability for those who contributed to the near collapse of our economy.” Drew Benson, a spokesman for Credit Suisse, said Thursday in an email that the bank will appeal the ruling.
New York sued Credit Suisse in November 2012, claiming Switzerland’s second-largest bank misrepresented the risks of investing in mortgage-backed securities. Last year, the bank argued that New York missed a three-year deadline for suing. The state countered that it had six years to file its complaint.
If the bank had won, Schneiderman would have faced a new roadblock as he considers similar multibillion-dollar claims against Wall Street firms.
JPMorgan Chase, also sued by Schneiderman’s office, agreed to settle that case along with federal claims over mortgage-backed securities in a landmark $13 billion accord last year. The state got $613 million in the settlement, the first in a string of payouts it has received in legal agreements over the financial instruments.
In July, Citigroup agreed to pay $7 billion in fines and consumer relief to resolve claims by the federal government and states including New York. The following month, Bank of America agreed to pay about $17 billion, including almost $10 billion in cash, to resolve civil investigations by federal and state prosecutors, including Schneiderman.