Recently, the attorney general for the State of New York filed a lawsuit against Credit Suisse, a prominent bank, for allegedly defrauding investors as to the quality of mortgage loans that the bank placed into mortgage-backed securities.
The felony charges stem from a piece of New York state legislation known as the Martin Act, which allows the state’s attorney general to file a civil lawsuit against a financial institution for fraud; in some situations, the attorney general need not have proof of fraud before filing the suit . As of yet, the bank has not made any comment regarding the charges, and it is unclear what penalties it could potentially face.
Securities fraud, which is basically what is alleged in this case, occurs when a financial institution solicits investment by misleading a potential investor about a company’s financial health or prospects. The fraud occurs when the investor invests his or her money in the company or the stock based on misleading information provided by the financial institution. The person, or, in this case, the institution accused of securities fraud must know or have a reason to know that the statements made were false.
In this particular case, a trusted bank is accused of defrauding its investors by misrepresenting the financial soundness of mortgage loans. Accusations such as this can be very harmful for the credibility and the reputation of financial institutions, as these rely on the trust of investors and potential investors in order to survive. An accusation of misconduct as serious as this one could potentially cause a bank, credit union or other financial institution to go out of business due to the loss of credibility and trust.
Anyone accused of securities fraud or another white collar crime is entitled to an aggressive criminal defense. Such a person has the right to challenge the admissibility of any evidence presented by the state and to question any witnesses that the state provides. Anyone accused of a white collar crime need not accept the charges and the severe penalties that will follow, but has the right to fight for his or her freedom and reputation.
Source: The Village Voice, “NYAG Eric Schneiderman’s new Wall Street fraud target: Credit Suisse,” John Surico, Nov. 21, 2012