The securities fraud misselling claim brought in the Commercial Court in 2018 by a German investor appears in The Lawyer magazine's Top 20 Cases for 2023 - Loreley Financing No 30 v Credit Suisse Securities (Europe), Credit Suisse International, Credit Suisse Securities (USA), and Credit Suisse. The full article can be found at https://www.thelawyer.com/unveiled-the-top-20-cases-for-2023/.
The lawsuit arises from settlements reached in recent years between the US Department of Justice ("DoJ") and a number of global banks in which those banks admitted fraudulent behaviour in making false and misleading representations to prospective investors about the characteristics of the US mortgage loans they securitised.
The claim filed in the Commercial Court in London on 15 November 2018 was the first of other similar potential claims to be investigated since that time. However, the detail of those claims often does not become public, as, is routinely the case in these disputes, the matter is resolved by commercial settlement prior to the filing of any publicly-available Court documents.
In recent years the DoJ has reached settlements with a number of banks following the widescale investigation of the packaging and sale of residential mortgages in the US.
Our law firm (together with other leading securities law experts in London) have considered whether claims against those banks for the fraudulent misselling of certain CDOs may be brought in the English courts by the original investors in those CDOs. Relevant CDOs would consist of those arranged and sold by a bank that had included within the CDO portfolio certain of their own RMBS transactions that are now known to have been tainted by the frauds revealed in the DoJ settlements.These claims rest on the premise that the terms of the agreed Statement of Facts (contained within the relative DoJ Settlement Agreements) amount (for the first time) to a clear admission of fraud in relation to the RMBS transactions identified, such that the limitation period for such claims in the English courts would be 6 years from the date on which the admission was made and the fraud came to light (in each case, that date would be the date of the DoJ settlements - as listed below).
At the core of claims by investors in relevant CDOs is the fact that the bank that arranged that CDO has admitted in its Settlement Agreement with the DoJ that, at the time it structured and distributed the CDO, it knew of its fraudulent conduct in relation to its own RMBS issuances, including some RMBS which were subsequently placed in the collateral pool (in the case of cashflow CDOs) or within the reference portfolio (in the case of synthetic CDOs, credit-linked Notes, CSOs).The relief available to investors could include, not only contractual damages for losses suffered due to such fraud, but alternatively (and which may be more advantageous to claimant investors) "restitution" of the parties to their original pre-contract positions.
The first claim in the English courts - Magnolia Finance CDOs
The first such fraud misselling claim was filed in the Commercial Court on 15 November 2018:
Loreley Financing (Jersey) No 30 Limited ("L30") –v- (1) Credit Suisse Securities (Europe) Limited ("CSSEL"); (2) Credit Suisse International ("CSI"); (3) Credit Suisse Securities (USA) LLC ("CSSUL"); and (4) Credit Suisse AG ("CSAG") (FL-2018-000019).
The following extracts are from the Claim Form:
- The Claimant’s claim arises out of its purchase from [a certain Credit Suisse entity] ... of ... USD 100,000,000 ABS Portfolio Variable Rate Notes ... (“the Notes”).
- The Notes were linked to the credit of a portfolio of Reference Obligations which comprised residential mortgage backed securities (“RMBS Securities”). The RMBS Securities included certain RMBS securities that the ... Defendants ... had packaged, marketed, structured, arranged, underwritten, issued or sold. The Notes formed part of a synthetic collateralised debt obligation (CDO) product that was jointly arranged by the ... Defendants and sold to the Claimant by the ... Defendants ... .
- The Claimant purchased the Notes in reliance on representations made by or on behalf of ... [the] ... Defendants relating to the characteristics and quality of the RMBS Securities.
- Those representations were false by reason of the matters set out in the Statement of Facts included at annex 1 to the settlement agreement entered into between the ... Defendants and the United States Department of Justice on 18 January 2017. The representations were made fraudulently, in that [the] ... Defendants knew that the representations were false or was reckless as to whether the representations were true or false.