by David Voreacos
December 19, 2013
Credit Suisse Group AG (CSGN) defrauded investors of more than $1 billion by
misrepresenting the risks of its residential mortgage-backed securities,
acting New Jersey Attorney General John J. Hoffman said in an interview.
Hoffman's office sued Credit Suisse over claims it misled investors about
the risk involved in more than $10 billion in securities issued in 2006 and
2007, before the housing market collapsed.
The lawsuit follows one by New
York Attorney General Eric Schneiderman, who claimed last year that the bank
misled investors about its review of mortgages underlying securities.
"Credit Suisse was greedy and irresponsible," Hoffman said yesterday.
"The losses are in excess of $1 billion and likely in the billions."
Credit Suisse, the second-biggest Swiss bank, faces other state and federal
investigations that could lead to a consolidation of claims filed by
governments, Hoffman said.
The Zurich-based bank has asked a judge to
dismiss the New York case, and criticized the New Jersey complaint announced
"This complaint is without merit," Drew Benson, a Credit Suisse spokesman,
said in an e-mail. "It recycles baseless claims and uses inaccurate and
exaggerated figures. We look forward to presenting our defense in
John J. Hoffman,
acting attorney general of New Jersey,
whose office sued Standard &
Poor's earlier this year
over how it rated mortgage
said almost a dozen people in
his office are working on such cases.
He declined to say what other
banks, if any,
might be under investigation.
Photographer: Michael Loccisano/Getty Images
The state claims Credit Suisse Securities (USA) LLC and two affiliates
didn't disclose that loans didn't meet underwriting standards and
originators had "poor track records characterized by alarming levels of
defaults and delinquencies."
Such red flags showed the securities,
"posed a high risk of delinquency and
default, which could - and ultimately did - inflict enormous losses on the
investors," according to the complaint, filed in state court in Trenton.
The securities were based on pools of mortgages not backed by Fannie Mae
(FNMA) or Freddie Mac, the two government-sponsored enterprises that provide
liquidity to the housing market by packaging loans into securities.
Suisse bought those loans from originators that failed to conduct proper due
diligence, according to the complaint.
Investors received prospectuses that
failed to disclose,
"rampant abandonment of underwriting guidelines,"
according to the complaint.
Credit Suisse maintained a "Watch List Committee" to weed out risky
originators, yet still bought their loans, according to Hoffman's complaint.
The bank made,
"tens of millions of dollars in reimbursements" tied to
defective loans, he said in a statement.
Hoffman, whose office sued Standard & Poor's earlier this year over how it
rated mortgage securities, said almost a dozen people in his office are
working on such cases.
He declined to say what other banks, if any, might be
"We're taking an aggressive, affirmative look and perspective towards
institutions responsible for defrauding investors," he said. "To the degree
that involves additional lawsuits, that's the direction we're heading
Hoffman is part of the Residential Mortgage-Backed Securities Working Group,
which has pulled together the U.S. Justice Department and state attorneys
general to bring cases.
In October, JPMorgan Chase & Co. (JPM) agreed to pay
$13 billion over mortgage-related malfeasance.
The group approach is shaping litigation, and could affect how New Jersey
pursues the Credit Suisse case, Hoffman said.
"Given that there are other state and federal entities investigating, and
New York has already brought suit, there's likely to be coordination in
identifying the reach of the complaint," he said. "If additional suits are
filed, I'm sure there will be some coordination in how to make
Hoffman said he has worked well with Schneiderman in discussing substantive
and procedural matters over Credit Suisse.
"We have similar claims and interests and end goals," Hoffman said.
"We have slightly different complaints
because two different groups looking at this independently will have a
different perspective. But our purposes are aligned."
Such alignment extends to the other investigators, he said.
"In many respects our conversations with General Schneiderman are also with
the working group," he said.
Hoffman declined to say what other companies might be in his cross hairs.
The Credit Suisse case, he said, isn't just about money.
"In the context of resolving this case, we'll try to institute remedial
measures so that there will be greater accountability and transparency," he
said. "It's not just about money. It's about this not happening again."
Hoffman was appointed by Governor Chris Christie, a Republican, in June. He
previously served as executive assistant attorney general under his
predecessor, Jeffrey Chiesa, who stepped down to serve as a U.S. senator.
Hoffman also worked for six years as a federal prosecutor in New Jersey and
for eight years as a trial attorney in the Justice Department's civil
The case is Hoffman v. Credit Suisse, Superior Court of New Jersey, Mercer
To contact the reporter on this story: David Voreacos in federal court in
Newark, New Jersey, at
To contact the editor responsible for this story: Michael Hytha at