Legal News

Credit Suisse Ordered to Pay $400 Million in ARS Flap

By Ashby Jones

It wasn’t a particularly good day for banking stocks, nor was it a banner Friday for the legal group at Credit Suisse. An arbitration panel earlier today ordered a brokerage unit of the bank to pay STMicroelectronics NV more than $400 million to settle claims it misled the semiconductor maker into buying auction-rate securities that have lost much of their value. Click here for the Bloomberg story; here for the WSJ story; here for a copy of the FINRA award.

According to its complaint to FINRA, STMicro wanted to invest in student-loan securities backed by U.S. government guarantees. Instead, its funds were put into collateralized-debt obligations, some of which were backed by subprime real-estate loans. State regulators and the SEC last year forced banks to buy back more than $50 billion in auction-rate securities to settle claims that the firms falsely touted the investments as safe, cash-like investments.

LB readers may recall the news last year that the U.S. attorney’s office in Brooklyn brought criminal securities-fraud charges against two former Credit Suisse brokers who sold the securities to STMicro and others.

According to Bloomberg, today’s arbitration award is the biggest to a customer not covered by regulatory settlements last year, which focused on retail investors rather than institutional investors.

“We respectfully disagree with the arbitration panel’s award and are reviewing our legal options,” said Credit Suisse spokesman David Walker. An STMicro spokesman declined to comment on the case.

Could the ruling encourage others to sue? Joseph Fichera, chief executive officer of New York-based Saber Partners LLC and an expert witness in other auction-rate securities cases, thinks it’s possible: “This decision will likely lead to either more arbitrations or settlements between investors and broker-dealers.”

Full post as published by Law Blog - WSJ.com on February 13, 2009 (boomark / email).