A New York federal judge gave a preliminary green light Monday to a $15.5 million settlement between Credit Suisse and investors who sued the bank alleging it hid problems with risk management in its fixed-income franchise before $1 billion in write-downs in 2016.
The four pension funds who are leading the class asked U.S. District Court Judge Lorna G. Schofield in July to approve the $15.5 million cash settlement after the case's court-ordered mediation in March 2019.
The December 2017 lawsuit claimed Credit Suisse and several of its executives lied about risk limits and risk controls on its 2014 annual report, and misled investors in an Oct. 21, 2015, press release and earning call about the extent of the investment bank's positions in its distressed portfolio — collateralized loan obligations and distressed debt — and the riskiness of those investments.
Investors claimed this artificially inflated Credit Suisse's stock price and that the price dropped when the truth came out.
The investment bank's alleged misstatements allowed it to amass $4.3 billion in exposure in that distressed portfolio, causing massive write-downs and a loss to investors, the shareholders said.
Expanding its investments in fixed-income markets, Credit Suisse took on $1.3 billion in collateralized loan obligations and $3 billion in distressed debt, investors said.
The bank disclosed in February 2016, that it had taken a $633 million write-down because of losses in these positions.
That caused Credit Suisse's American depositary receipts to drop from $16.69 to $14.89, according to the complaint.
The bank announced in March 2016 there was $346 million more in write-downs against its first-quarter earnings, a loss of almost $1 billion, according to the suit.
The four institutional investors filed an amended complaint in April 2018 and in February 2019, the judge denied in part and granted in part the bank's motion to dismiss for failure to state a claim, allowing the allegations that Credit Suisse was misleading in its 2014 annual report.
Responding to the July settlement request, Judge Schofield preliminarily approved the settlement and set a hearing for Dec. 10.
The settlement class includes people who acquired American depositary receipts of Credit Suisse between March 20, 2015, and Feb. 3, 2016, and who were allegedly harmed.
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The pension funds are represented by Carol V. Gilden, Daniel S. Sommers and Molly J. Bowen of Cohen Milstein Sellers & Toll PLLC, and Steven B. Singer, Kyla J. Stewart, Joseph E. White III, Dianne M. Anderson, Lester R. Hooker and Adam Warden of Saxena White PA.
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