Credit Suisse and MBIA Insurance Continue to Fight Over Mortgage-Backed Securities Fraud Claims in Court

In New York Court of Appeals, MBIA Insurance Corp. and Credit Suisse Securities USA LLC (CS) presented arguments over whether to resuscitate part of the $235M mortgage-backed securities case brought by the insurer against the financial firm. NY Supreme Court Judge Shirley Werner Kornreich previously took out the fraud claim in MBIA’s case after finding that bond insurer wanted the same damages from both that claim and its contract claim. MBIA has since appealed, arguing that Kornreich misread the facts presented, as well as the applicable case law.

The bond insurer contends that both the contract and fraud claims are separate and valid. Credit Suisse, meantime, maintains that contract and fraud claims are “duplicative.”

In addition to cutting the insurer’s fraud claim from the lawsuit, Kornreich rejected MBIA’s request that she find that Credit Suisse breached its warranties regarding the mortgages’ quality in about 29% of instances. The judge also called MBIA to task for not doing its own due diligence regarding the loans’ quality.

MBIA had sued two Credit Suisse units in 2009, accusing them of misrepresnting the risks involved with insuring 15,000 subprime mortgages that had been bundled right before the US housing market failed. The bond insurer later found itself responsible for paying $220M in coverage.

MBIA believes that Credit Suisse’s marketing of the MBSs, which is what persuaded the insurer to cover the subprime mortgages, was fraudulent. It also accused DLJ Mortgage Capital Inc., a sister company of Credit Suisse, of reneging on its agreement to buy back the faulty mortgages.

Barclays and DOJ Resume RMBS Fraud Talks
In other mortgage bond fraud news, Bloomberg reports that the US Department of Justice and Barclays (BARC) have resumed talks about arriving at an out-of-court settlement in the mortgage bond fraud lawsuit brought against the bank. Negotiations to reach a settlement between the two parties had previously failed, hence the residential mortgage-backed securities lawsuit that was filed in 2016.

Last month, Barclays asked a federal judge to toss out the case. The government countered, contending that the RMBS fraud case shows that the bank engaged in a “massive and coordinated fraud” that cost investors billions of dollars. The DOJ claims that Barclays fooled investors about the quality of over $31B in loans that were backing securities sold between ’05 and ’07. Over half of the loans defaulted.

If you suspect that your investment losses are due to mortgage-backed securities fraud, please contact The SSEK Partners Group today and ask to speak with one of MBS fraud attorneys.

Credit Suisse, Mortgage Insurer Clash On Axed Fraud Claim, Law360, October 24, 2017

MBIA sues Credit Suisse over insured securities, Reuters, December 16, 2009

United States Sues Barclays Bank to Recover Civil Penalties for Fraud in the Sale of Residential Mortgage-Backed Securities, DOJ, December 22, 2016