New Jersey today filed a civil suit against a unit of the investment bank Credit Suisse and two of its affiliates over representations they made about more than $10 billion worth of debt investments that ended up turning sour during the financial crisis.
In a lawsuit filed on behalf of New Jersey’s Bureau of Securities, the state accuses Credit Suisse Securities and others of both misrepresenting the risks and failing to disclose major defects of residential mortgage-backed securities it sold investors.
These undisclosed items include Credit Suisse’s own finding that some 25 percent of the loans underlying these securities were “underwater,” or owed more than they were worth, and that the bank’s own traders refused to hold them at the same time they were being sold to investors, the state’s Office of Attorney General said in a statement.
The state also claims that Credit Suisse failed to disclose that it had abandoned its underwriting guidelines for assembling these securities and that some originators of loans had poor track records of delinquencies and defaults.
“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,” acting Attorney General John Hoffman said.
“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.”
Also named in New Jersey’s suit were Credit Suisse First Boston Mortgage Securities and DLJ Mortgage Capital. The suit was filed in Superior Court of Mercer County.
A Credit Suisse spokesman said the bank denied any wrongdoing and said New Jersey simply rehashed claims previously made by the New York attorney general and private litigants.
“This complaint is without merit. It recycles baseless claims and uses inaccurate and exaggerated figures. We look forward to presenting our defense in court,” spokesman Drew Benson said in a statement.
Today’s case follows another lawsuit New Jersey filed last month against the Wall Street rating agency Standard & Poor’s, alleging it failed to be independent and objective when it assigned overly optimistic ratings to complex securities that ended up flopping in the financial crisis. In that matter, S&P also said it would fight the claims.
Related Coverage
• New Jersey sues S&P, McGraw Hill over financial crisis-era credit ratings
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NJ sues Credit Suisse over mortgage securities soured in financial crisis – The Star-Ledger – NJ.com
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