Credit Suisse Group AG must face a lawsuit claiming it fraudulently induced MBIA Inc. to guarantee $900 million of mortgage-backed bonds, a judge said.
Justice Shirley Werner Kornreich of New York State Supreme Court in Manhattan denied a bid by Credit Suisse to dismiss the MBIA lawsuit. The plaintiff is the world's largest bond insurer; it alleges misrepresentations about securities marketed by the bank.
MBIA in December sued the bank's Credit Suisse Securities unit, which underwrote the bonds, as losses on the transaction soared. Credit Suisse sought to have the case dismissed, arguing that MBIA was a sophisticated party that failed to do its own review of the loans backing the securities and was notified about deficiencies in the loan-pool information.
"Defendants' contention that a sophisticated entity such as MBIA was required to look beyond Credit Suisse's contractual representations and conduct extensive due diligence was rejected" in a prior case, Kornreich wrote. The decision was released Aug. 9.