New York’s highest court on Tuesday curbed the state attorney general’s ability to fight fraud on Wall Street, awarding a victory to Credit Suisse Group AG (CSGN.S) as it tries to end an $11 billion (£8.2 billion) lawsuit over risky mortgage securities.
By a 4-1 vote, the state Court of Appeals said New York’s top law enforcement officer has just three years to bring claims under the Martin Act, a 1921 law granting that office broad power to pursue civil and criminal cases over securities fraud without having to prove intent to defraud.
Two lower courts had agreed with the attorney general that the deadline should be six years, and rejected Credit Suisse’s arguments that the state sued too late. Tuesday’s decision overturned those findings.
“The Martin Act imposes numerous obligations – or ‘liabilities’ – that did not exist at common law, justifying the imposition of a three-year statute of limitations,” Chief Judge Janet DiFiore wrote.
The decision could doom a November 2012 lawsuit brought by then-Attorney General Eric Schneiderman accusing Credit Suisse of lying about the quality of loans underlying residential mortgage-backed securities it sold in 2006 and 2007, resulting in steep investor losses during the global financial crisis.
But the appeals court said current Attorney General Barbara Underwood deserved a chance to show a lower court that Credit Suisse committed fraud under common law, subjecting it to a six-year statute of limitations under the state’s Executive Law.
Underwood took over the case after Schneiderman resigned last month.
“We don’t anticipate this impacting our cases in any significant way,” said Amy Spitalnick, a spokeswoman for Underwood. “This decision will have no impact on our efforts to vigorously pursue financial fraud wherever it exists in New York. That includes continuing our case against Credit Suisse.”
The lawsuit had accused Credit Suisse of concealing known defects in home loans underlying its securities in a bid to sell more securities and generate higher fees.
– By Jonathan Stempel, Reuters, 12 June 2018.
Link to Reuters.