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Credit Suisse to Gain From Narrowing of Martin Act Statute


Per the latest ruling by the New York State Court of Appeal, the statute of limitations for raising claims under the Martin Act has been contracted to three years instead of six. The 4-to-1 decision by New York’s highest court is likely to grant victory to Credit Suisse Group AG CS as it tries to end an $11 billion mortgage securities fraud lawsuit filed against it in 2012.

The Martin Act is an anti-fraud law under which the New York’s Attorney General has powers to conduct investigations of securities fraud and hence, bring civil or criminal actions against alleged violators.

In 2012, with this act as the basis, the then Attorney General, Eric T. Schneiderman had filed a lawsuit against Credit Suisse over its fraudulent marketing of mortgage-backed bonds. According to Schneiderman, Credit Suisse “deceived investors” about the quality of the mortgages that it converted into bonds, which were sold during the run-up to the financial crisis.

However, after Schneiderman resigned in May 2018, the case has been undertaken by the current Attorney General, Barbara D. Underwood.

While the decision by the Court of limiting the time frame that prosecutors have to bring fraudulent cases under the Martin Act will benefit Credit Suisse, it has larger consequences that is expected to affect the entire industry.

The decision will reduce the amount of time the Attorney General’s office has to use a powerful law when pursuing securities fraud claims.

Nonetheless, Amy Spitalnick, a spokeswoman for Barbara informed that the ruling would not have any major impact and its effects would be limited because most of the office’s cases against Wall Street firms are brought in a timely fashion. She stated, “We don’t anticipate this impacting our cases in any significant way. We intend to move forward all of our existing investigations and prosecutions.”

In fact, the lawsuit against Credit Suisse is not completely over with this ruling. According to the court, some of the claims against the bank are eligible to proceed under the Executive Law. Hence, the court has sent the case back to the trial court to examine and see if the claims are still feasible under that statute.

However, Credit Suisse has said that it is going to continue defending itself against the remaining claims under the Executive Law. The bank stated, “Limiting the statute of limitations period for Martin Act claims is significant not only for this case but for all future industry proceedings.”

Shares of Credit Suisse have lost 11.6% so far this year compared with 9.8% decline of the industry.

Currently, the stock carries a Zacks Rank #4 (Sell).

A few better-ranked stocks from the same space are Banco de Chile BCH, Banco Santander-Chile BSAC and Bank of Montreal BMO. Each one of these currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Banco de Chile have gained 23.3% over the past 12 months. Its Zacks Consensus Estimate for the current-year earnings has moved up 1% over the last 60 days.

Banco Santander-Chile’s shares have gained 24.3% in the past year. Its Zacks Consensus Estimate for the current year has remained stable over the last 60 days.

Bank of Montreal’s shares have gained 12% over the past 12 months. Its Zacks Consensus Estimate for current fiscal’s earnings has climbed 1.5% upward over the last 60 days.

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