Credit Suisse will pay $495 million to settle a nine-year-old lawsuit alleging that they engaged in fraudulent and deceptive practices during the sale of mortgage-backed securities, ending the biggest and most complex civil lawsuit in New Jersey history and providing the Murphy administration with a major victory.
The New Jersey Attorney General’s office and Credit Suisse announced the settlement — the largest ever received by the state, at 2 AM, which coincides with the 8 AM opening of Credit Suisse headquarters in Geneva.
About $300 million of the settlement will go to investors as restitution.
The New Jersey Bureau of Securities filed a $3 billion lawsuit against Credit Suisse in 2013 asserting that Credit Suisse Securities USA that the global investment bank and financial services firm offered more than $10 billion of toxic residential mortgages guaranteed by securities trusts for sale while “misrepresenting the risks of the investments. The mortgages were offered and sold from 2006 to 2007 as part of the lead-up to the 2008 U.S. financial crisis.
Then-Attorney General John J. Hoffman accused Credit Suisse of failing to disclose “that numerous loan originators had poor track records of defaults and delinquencies, and some had even been suspended from doing business with Credit Suisse.”
Credit Suisse will neither admit nor deny these allegations as part of the anticipated settlement, the attorney general’s office said.
“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. The recovery Credit Suisse has agreed to pay reflects the magnitude of harm it inflicted on the public and underscores New Jersey’s commitment to vigorously pursue cases, no matter the challenges, to protect the financial interests of the investing public.”
Superior Court Judge Timothy Lydon set a September 12 trial date last October, but his resignation from the bench last month to become the executive director of the Senate Majority Office had delayed the trial.
The new judge, Kay Wolcott-Henderson, had a scheduled a conference for October 26 to determine a new trial schedule.
“Credit Suisse is pleased to have reached an agreement that allows the bank to resolve the only remaining RMBS matter involving claims by a regulator and the largest of its remaining exposures on its legacy RMBS docket,” the bank stated in a statement released this morning. “The settlement, for which Credit Suisse is fully provisioned, marks another important step in the bank’s efforts to proactively resolve litigation and legacy issues.”
The case is has already had more than 40 motion hearings and 17 case management conferences. It involves some of the biggest law firms in the region.
“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. “The Bureau will continue to protect the integrity of New Jersey’s financial services industry by bringing cases against firms that unlawfully drive up profits by withholding vital information about the products they sell.”
The state had alleged that a large number of the loans examined by Credit Suisse were “underwater” and had combined loan-to-value ratios of more than 100 percent. Traders at Credit Suisse had cautioned the bank against the risky nature of the loans, the lawsuit claimed, and that Credit Suisse “had pocketed tens of millions of dollars in reimbursements from loan originators arising out of defective loans, without passing those funds along to the trusts that actually owned the loans.”