Judge Tosses Securities Suit Against Credit Suisse

By Shannon Henson

Law360, New York (September 29, 2009) -- A federal judge has dismissed a proposed securities class action accusing Credit Suisse and some of its leaders of not disclosing its risk associated with subprime lending, ruling that the plaintiffs failed to prove that the court had subject matter jurisdiction.

In a short order Monday, Judge Victor Marrero of the U.S. District Court for the Southern District of New York tossed the case, saying his reasoning would be spelled out in a decision issued at a later date.

Judge Marrero also said the decision would consider whether the plaintiffs — Kevin Cornwell, John M. Grady, Irish Life & Permanent PLC and Erste-Sparinvest KAG — should have leave to amend the complaint.

The proposed class consisted of those who bought Credit Suisse stock, including but not limited to American Depositary Receipts of Credit Suisse from Feb. 15, 2007, to April 14, 2008.

The amended complaint in the case also named CEO Brady W. Dougan; Chief Financial Officer Renato Fassbind; Walter B. Kielholz and Hans-Ulrich Doerig, the Credit Suisse board of directors chairman and vice chairman, respectively; D. Wilson Ervin, Credit Suisse’s Chief Risk Officer; and Paul Calello, the CEO of the investment banking segment.

Among other things, the 210-page amended complaint filed in October 2008 said the defendants misstated the value of the company's products and did not fully detail its exposure to subprime investments.

The defendants hid the fact that Credit Suisse's internal controls were insufficient to make sure that losses were properly accounted, the plaintiffs contended, and Credit Suisse shares were thus trading at inflated prices.

The defendants argued in motions with the court that the suit should be dismissed because the court lacked subject matter jurisdiction over the claims of the so-called foreign-cubed plaintiffs who constituted the overwhelming majority of the purported class.

A foreign-cubed action involves a foreign plaintiff suing a foreign defendant for securities transactions in foreign countries.

The plaintiffs said the case could be tried in the U.S. because some of Credit Suisse's subprime-related investments, which were the subject of the alleged misstatements, were made in the U.S. and had an effect on U.S. markets.

But the defendants said that precedent rejected those theories expressly “warning courts against plaintiffs using 'a very small [U.S.] tail [to] wag [a foreign] elephant.'”

Lawyers for the plaintiffs and defendants either did not respond to a request for comment or declined comment.

The defendants are represented by Cravath Swaine & Moore LLP.

Co-lead counsel for the plaintiffs are Scott + Scott LLP and Coughlin Stoia Geller Rudman & Robbins LLP.

The case is Kevin Cornwell et al. v. Credit Suisse Group et al., case number 08-cv-03758, in the U.S. District Court for the Southern District of New York.

--Additional reporting by Ben James