A global investment bank responsible for the loss of billions of dollars that helped put the entire world economy in a financial crisis will pay the equivalent of a $32 fine for someone with a $50,000 net worth.
Credit Suisse, a financial services firm headquartered in Switzerland, is being fined 0.06% of its $760 billion in assets more than a decade after it lied about toxic residential mortgage-backed securities (“RMBS”) it sold from 2006 to 2007.
The state alleged Credit Suisse made material misrepresentations in the offering documents about the risks of the RMBS, including by failing to disclose material defects of the underlying mortgages, in violation of New Jersey’s securities laws.
“This agreement in principle holds Credit Suisse accountable for the loss of billions of dollars that helped put the nation in financial crisis,” said First Assistant Attorney General Lyndsay V. Ruotolo, who said the New Jersey Bureau of Securities reached a $495 million agreement with the banksters who robbed billions from investors.
“It has taken more than a decade of investigation and litigation to reach this historic result, but we never wavered in our resolve to get here,” said Ruotolo. “The recovery Credit Suisse has agreed to pay reflects the magnitude of harm it inflicted on the public and underscores New Jersey’s commitment to vigorously pursue cases, no matter the challenges, to protect the financial interests of the investing public.”
One prominent New Jersey Democrat said the fine is not commensurate with the crime.
“A fine of less than half-a-billion dollars does not compensate for the loss of billions of dollars, and possibly trillions of dollars,” said Lisa McCormick, the progressive challenger who contested the re-election of Senator Bob Menendez in the 2018 New Jersey Democratic primary election.
Like many progressives, McCormick has called for a corporate death penalty and the breakup of banks that are too big to fail, or large enough to drag down the entire world economy if they go belly up.
“For many decades, the vital power to revoke a corporation’s charter has lain dormant in the public mind but government authorities can and should shut down irresponsible businesses that engage in criminal behavior,” said McCormick.
The Office of the Attorney General announced that the New Jersey Bureau of Securities has reached a $495 million agreement in principle with Credit Suisse Securities (USA) LLC, Credit Suisse First Boston Mortgage Securities Corp., and DLJ Mortgage Capital, Inc.—all part of the Credit Suisse corporate conglomerate.
The agreement resolved a lawsuit arising from the offer and sale of toxic mortgages from 2006 to 2007 in the run-up to the 2008 financial crisis.
Authorities boast that the deal will be one of the largest civil monetary recoveries in New Jersey’s history, and will include about $300 million in restitution for investors nationwide.
McCormick says the company, which has previously pled guilty to multiple international tax avoidance schemes, not only remains in business but it is also a primary dealer of government securities and a foreign exchange market counterparty of the Federal Reserve System.
“I don’t know much about the trading of currencies, but I do know that greedy criminals should not be empowered by the Federal Reserve, the central banking system of the United States of America, to determine foreign exchange rates or allowed great advantages in all aspects of buying, selling and exchanging currencies,” said McCormick.
About $22 trillion was lost in the 2008 financial crisis, according to by the Government Accountability Office, which also determined that it threatened the stability of the U.S. financial system and the health of the American economy.
“The 2008 financial crisis cost the U.S. economy more than $22 trillion, and Credit Suisse made billions in profit but the fine in this deal with New Jersey is the equivalent of a $32 fine for someone with a $50,000 net worth,” said McCormick.
As the financial crisis got worse, the U.S. government approved a $700 billion program to bailout institutions that were considered “too big to fail” but many analysts say the real price tag was $12.8 trillion.
McCormick noted that American International Group (AIG) and other large bailout recipients remain in business, and many ‘too big to fail’ financial institutions are even bigger today than they were at the outset of the last financial crisis and in just as much danger of causing catastrophic damage.
The attorney general’s office claimed more than $3 billion in damages when the case was filed in 2013.
New Jersey officials alleged that Credit Suisse perpetrated much of the fraud from its office in Princeton, which was central to the bank’s business of selling the toxic RMBS to hundreds of institutional investors nationwide, including public and private pension funds, charities, educational institutions, mutual funds, hospitals, and other money managers.
The scheme robbed the retirement funds of workers and the savings of individual retail investors but Credit Suisse will neither admit nor deny these allegations as part of the anticipated settlement.
Credit Suisse, which lost half its share price in the last 12 months, has already paid out huge sums to resolve claims related to flawed investment products, including a $5.3 billion deal with the federal Department of Justice in 2017.
It said at that time products it sold did not meet underwriting guidelines.
It also paid $600 million to MBIA Inc last year after the New York based-municipal bond insurer paid out hundreds of millions to compensate investors.
In June, the bank was convicted of failing to prevent money laundering by a Bulgarian cocaine trafficking gang, while a Bermuda court ruled that former Georgian Prime Minister Bidzina Ivanishvili and his family were due damages of “substantially in excess of $500 million” from Credit Suisse’s local life insurance arm.
The Justice Department is also investigating whether Credit Suisse continued helping U.S. clients hide assets from authorities, eight years after the Swiss bank paid a $2.6-billion tax evasion settlement.
Meanwhile, McCormick said that corporate profits in the US have increased significantly faster than the inflation rate, wages, and the economy as a whole.
McCormick distinguished herself by not taking money from special interest PACs and proposing to radically upend our entire system of pay-to-play politics by outlawing campaign contributions that might influence politicians. While spending less than $5,000, McCormick earned 159,998 votes statewide in her primary race against Menendez—a slightly greater percentage than Bernie Sanders got two years earlier.
“The 400 richest American families now pay a lower overall tax rate than ordinary working families,” said McCormick, who has consistently called for tax increases on corporations and the most wealthy people in the country. “This settlement shows that greedy thieves can get away with crimes if they have enough wealth.