New York Attorney General Eric Schneiderman has filed a lawsuit against Credit Suisse (CS) for allegedly deceiving investors in mortgage backed securities, the second case he has filed as part of a joint effort with the federal government.

Credit Suisse's misconduct and deceit was at least partially responsible for more than $11 billion in losses suffered by investors in its boom-era residential mortgage securitizations, New York's suit claims.

The bank "systematically misrepresented that it had a careful due diligence process," Schneiderman said on a media conference call. Banks officials "took loans they knew were bad, because they were so anxious to pool more mortgage back securities and make more money."

Some Credit Suisse employees resisted the efforts, Schneiderman said. But they lost.

"There was a battle going on inside credit Suisse," he said. "A group of credit Suisse officers … were telling the traders and others that they had to put up with bad loans."

The alleged false claims are rooted in the prospectuses for Credit Suisse mortgage backed securities, which claimed that the bank had high standards and a "disciplined origination and purchase strategy," according to investor marketing documents cited in the case.

The AG's office alleges that, internally, the bank was aware its standards were far lower. Among the dcuments cited in the New York complaint is an email in a Credit Suisse employee wrote that the bank's "incentives" program encouraged originators "to continue delivering… crap."

Although the company's head of due diligence wrote in an internal 2007 email that Credit Suisse's mortgage quality control suffered from "systemic problems," the company did nothing to halt its production of new securitizations, the suit claims. Nor did it repurchase loans written by its own subprime unit, Lime Financial Services, as it was contractually obligated to do, the complaint says. The bank even securitized loans that its own due diligence consultant, Clayton underwriting due diligence consultant, Clayton Holdings, had identified as ineligible for repurchase, according to due diligence staff interviewed by the AG's office.

"We firmly reject this complaint which recycles baseless claims from private lawsuits and uses an inaccurate and exaggerated number," a representative of the bank said in a prepared statement. "We look forward to presenting our defense in court."

New York's case is being brought under the Martin Act, a state law which gives the attorney general broad authority to pursue misconduct in the securities markets.

Schneiderman filed a similar securities fraud case against JPMorgan Chase (JPM) last month and made note during the media call of federal efforts to pursue claims aganst Bank of America's (BAC) Countrywide and Wells Fargo (WFC).

"The working group is working, and this is just the latest complaint," he said. "We're a long way from wrapping this up."

Reporters on the call questioned why the government has taken so long to file cases involving bank securitizations that have been a source of controversy for many years.

"We moved as quickly as we can," Schneiderman said, noting that the Mortgage Securities Working Group was only formed in February. "I can't speak to what was going on prior to that."

In the years since mortgage securities began suffering large losses, a number of private investors have brought civil suits of their own against virtually every major bank. Governmental bodies that sustained losses have also sought recoveries, with the National Credit Union Association, various Federal Home Loan Banks and others filing claims. Last week the Securities and Exchange Commission announced a $120 million civil settlement with Credit Suisse over similar allegations of misconduct.

Asked what value additional litigation by New York has, Schneiderman said that the state's claim serves a different though complimentary purpose.

"It's really about protecting the market," he said, adding that the state reviewed more than a million pages of documents during its investigation.

New York's press release announcing the suit included praise from other members of the federal-state mortgage backed securities task force, including the Federal Housing Finance Agency's inspector general, the Department of Justice, and the SEC.

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