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Feb. 19 (Bloomberg) -- As Credit Suisse Group AG sees it, time has run out on New York Attorney General Eric Schneiderman’s pursuit of Wall Street banks for mortgage fraud that helped trigger the financial crisis.
Schneiderman sued Credit Suisse in 2012 as part of a wide- ranging probe into mortgage bonds. He claimed Switzerland’s second-largest bank misrepresented the risks associated with $93.8 billion in mortgage-backed securities issued in 2006 and 2007.
Credit Suisse asked a Manhattan judge in December to dismiss Schneiderman’s case, as well as his demand for as much as $11.2 billion in damages. The bank argued that New York, by waiting so long to file the lawsuit, missed a three-year legal deadline for suing. The state countered that it had six years to file its complaint.
If the bank wins, Schneiderman will face a new roadblock as he considers similar multibillion-dollar claims against a dozen other Wall Street firms. The judge in New York State Supreme Court could rule at any time.
“It would obviously tilt everything in the favor of Credit Suisse and similarly situated financial institutions,” said David Reiss, a professor at Brooklyn Law School, hindering New York’s remaining efforts to hold banks accountable for mistakes that spurred a recession.
The obstacle posed by such statutes of limitation in pursuing mortgage-bond cases may be traced back to Andrew Cuomo, Schneiderman’s predecessor. Although now-Governor Cuomo didn’t file any such cases against the banks, he announced a probe into all aspects of the mortgage business in 2008.
In doing so, he may have started the clock ticking on how long a state suit could be filed, making it impossible for fellow Democrat Schneiderman to argue his office didn’t learn of the bank’s conduct until he took office in 2011.
On Feb. 6, Credit Suisse said it was setting aside 514 million Swiss francs ($568 million) for legal issues, including 339 million francs for mortgage litigation. The bank may be preparing to resolve a related bond insurer lawsuit, Mark Palmer, an analyst with BTIG LLC in New York, said in a Feb. 10 note.
Matt Mittenthal, a spokesman for Schneiderman, and Dani Lever, a spokeswoman for Cuomo, declined to comment on the Credit Suisse case.
Schneiderman, 59, avoided a filing deadline dispute by settling a mortgage-bond case with JPMorgan Chase & Co. last year. The state got $613 million in that pact, New York’s share of the landmark $13 billion federal-state accord with the largest U.S. lender.
Armed with the Martin Act, New York’s powerful anti-fraud tool, Schneiderman has said he is seeking settlements with the other, unidentified banks.
In the lawsuit against Zurich-based Credit Suisse, filed in November 2012, he claims the bank ignored warning signs about the quality of loans it was packaging and selling. One example cited was its use of New Century Financial Corp. mortgages after that firm’s 2007 bankruptcy.
The attorney general’s lawsuit involves 64 Credit Suisse bond offerings in 2006 and 2007. Credit Suisse has said the losses on those offerings were only about half of the $11.2 billion claimed by Schneiderman.
One Credit Suisse executive described some of the mortgages the bank sold as “complete and utter garbage,” according to the complaint. The bank relied on mortgage originators that “systematically abandoned underwriting standards in the years leading up to the collapse of the housing market,” Schneiderman said.
Credit Suisse, which denies any wrongdoing, told Justice Marcy S. Friedman Dec. 11 that the suit should be thrown out because it was filed more than three years after the alleged wrongdoing was discovered.
Consumer fraud and personal injury claims are generally subject to a three-year statute of limitations under New York law, while financial frauds can be granted six years.