The New Jersey Office of the Attorney General recently reached a $495 million agreement in principle with Credit Suisse resolving a lawsuit that alleged the company engaged in fraud and deceit in the sale of mortgage-backed securities that fueled the 2008 financial crisis.
The settlement, which was made with Credit Suisse Securities (USA) LLC, Credit Suisse First Boston Mortgage Securities Corp., and DLJ Mortgage Capital, Inc., will be the one of the largest civil monetary recoveries in state history.
“This agreement in principle holds Credit Suisse accountable for the loss of billions of dollars that helped put the nation in financial crisis,” said First Assistant Attorney General Lyndsay V. Ruotolo. “It has taken more than a decade of investigation and litigation to reach this historic result, but we never wavered in our resolve to get here.”
Mortgage Crisis Settlement
Among other efforts, the settlement will bring nearly $300 million in restitution for investors nationwide.
The Attorney General’s Office argued Credit Suisse made material representations in the offering documents about the risks of residential mortgage-backed securities (RMBS) between 2006 and 2007 in the run-up to 2008’s financial crisis.
By failing to disclose material defects of the underlying mortgages, Credit Suisse had violated New Jersey’s securities laws, according to the allegations.
Bank Fraud
As alleged by the office, Credit Suisse perpetuated much of the fraud from its Princeton office, which was central to Credit Suisse’s business of selling “toxic” RMBS to hundreds of institutional investors nationwide.
The office noted public and private pension funds, charities, educational institutions, mutual funds, hospitals, and other money managers all invested in the RMBS, which hurt the retirement funds of workers and the savings of individual investors.
No Admittance of Guilt
Notably, Credit Suisse will neither admit nor deny the allegations as part of the anticipated settlement.
The office said Credit Suisse failed to offer other material information, including that its traders had warned against the risky nature of certain types of loans, and that it had pocketed tens of millions of dollars in reimbursements from loan originators.
Additionally, a significant number of the loans examined by the company were underwater with a combined loan-to-value ratio of more than 100%.
Restitution for Investors
The settlement will see Credit Suisse for the first time provide restitution to the investors, and will pay a civil monetary penalty of $100 million, which would also be the highest ever by the bureau.
It would also provide for the appointment of a Claims Administrator to help distribute the restitution to investors, and permanently enjoin Credit Suisse from future violations of New Jersey’s securities laws.
“This settlement will provide meaningful financial relief to investors nationwide who were left holding the bag in the fallout from Credit Suisse’s conduct. It also sends a clear message that we will not allow New Jersey to be used as a base of operations for unlawful schemes targeting investors,” said Acting Bureau Chief Amy G. Kopleton.
