Credit Suisse sued over auction-rate securities

The Credit Suisse bank has been sued in the United States over dubious auction-rate securities trading involving $450 million (SFr481 million).

STMicro said Switzerland’s second-biggest bank placed cash from the computer-chip maker into the securities without its authorization.

In a complaint filed in a federal court in New York two days ago STMicro said it assumed the money would be invested in highly liquid and secure investments, in this case US government-backed student loans.

The European chip maker alleges Credit Suisse instead bought illiquid, risky and unsuitable auction rate securities consisting of collateralized debt obligations and credit-linked notes, some of which were backed by subprime real estate loans.

Credit Suisse officials in New York refused to comment.

STMicro claimed in its lawsuit that “at least a dozen other multinational corporations are victims of the same scheme carried out by the same group of brokers and directors at Credit Suisse Securities and furthered by Credit Suisse Group”.

STMicro said it believed more than $2 billion of these clients’ money ended up invested in auction-rate securities.

Meanwhile, US bank Citigroup has agreed to buy back more than $7 billion of illiquid auction-rate securities and pay a $100 million fine to settle charges it fraudulently misled investors about the debt’s risk.

That agreement could pave the way for settlements with Switzerland’s biggest bank, UBS, Merrill Lynch & Co and others following February’s meltdown of the $330 billion auction-rate market.