$231 Million Fraudulant MBS’s | Allstate Insurance Co. v. Credit Suisse Securities (USA) LLC

Allstate Sues Credit Suisse Over Mortgage-Backed Securities

Allstate Corp., the largest publicly traded U.S. home and auto insurer, sued Credit Suisse Group AG units over claims they fraudulently sold the insurer more than $231 million of residential mortgage-backed securities.

“The systemic (but hidden) abandonment of the disclosed underwriting guidelines led to soaring default rates in the mortgage loans underlying the certificates,” Allstate said in the Credit Suisse complaint. “The value of Allstate’s certificates has plummeted, causing Allstate to incur significant losses. These losses were not caused by the downturn in the U.S. housing market, but by the defendants’ faulty underwriting.”

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Allstate Insurance Co.

v.

Credit Suisse Securities (USA) LLC

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From the complaint…

NATURE OF ACTION

This action arises out of the Defendants’ fraudulent sale of residential mortgagebacked securities (the “Certificates”) to Allstate. Whereas Allstate was made to believe it was buying highly-rated, safe securities backed by pools of loans with specifically represented risk profiles, the Defendants in fact knew the pool included a toxic mix of loans that had been given to borrowers who could not afford the properties, and thus were highly likely to default.

Percentage of Known Non-Conforming Loans

The Defendants fraudulently omitted to inform Allstate that due diligence conducted by third-party firms, and by the Defendants themselves, had identified numerous, specific loans that did not conform to the underwriting guidelines of the originators. Nor did they disclose that many of those very same loans had been “waived” into the collateral pools underlying the Certificates despite not having any purported “compensating” factors. Data recently made available from one of the largest due diligence firms – which worked for Credit Suisse – confirms this was occurring on a staggering scale. This not only confirms the results of Allstate’s analysis of the loans at issue, but also confirms the Defendants’ knowledge of those underwriting violations.

Owner Occupancy Statistics

The Offering Materials made specific representations regarding the percentage of borrowers who would be occupying the property being mortgaged – a key risk characteristic given that borrowers are less likely to walk away from properties they live in, as compared to properties being used as a vacation home or as an investment. Analytical tools recently made available to investors confirm that in truth, a far greater percentage of the loans underlying Allstate’s Certificates than represented by Defendants were given to borrowers who did not live in the homes that secured the mortgages in question.

Loan-to-Value Ratios

The Offering Materials represented that the loans had specific loan-to-value (“LTV”) and combined loan-to-value (“CLTV”) ratios. The LTV and CLTV represent the size of the borrower’s obligations as compared to the value of the property being used as collateral. The CLTV is the LTV after all loans are considered, not just the first mortgage. These are additional key risk metrics, because they represent the equity “cushion” that borrowers have, and the likelihood of repayment to lenders upon foreclosure. Analytical tools recently made available to investors confirm that in truth Defendants’ Offering Materials vastly overstated the value of the collateral being included in the loan pools, and hid additional liens that had been placed on the properties.

The Systemic Violation Of Underwriting And Appraisal Standards In The Mortgage Securitization Industry

During the 1980s and 1990s, the mortgage securitization business grew rapidly, making it possible for mortgage originators to make more loans than would have been possible using only the traditional primary source of funds from deposits. Originators during that period generally made loans in accordance with their stated underwriting and appraisal standards and provided accurate information about the loans, borrowers, and mortgaged properties to the Wall Street banks that securitized the loans. In turn, the Wall Street banks provided accurate information about the loans, borrowers, and properties to RMBS investors.

During the 1980s and 1990s, the mortgage securitization business grew rapidly, making it possible for mortgage originators to make more loans than would have been possible using only the traditional primary source of funds from deposits. Originators during that period generally made loans in accordance with their stated underwriting and appraisal standards and provided accurate information about the loans, borrowers, and mortgaged properties to the Wall Street banks that securitized the loans. In turn, the Wall Street banks provided accurate information about the loans, borrowers, and properties to RMBS investors.

The Defendants Were an Integrated Vertical Operation Controlling Every Aspect of the Securitization Process

The Defendants and their affiliates controlled, and thus had actual knowledge of or were reckless as to the truth about, every aspect of the securitization process, from loan origination through sale to Allstate. Defendants controlled and/or facilitated every aspect of originating and servicing the underlying Mortgage Loans, providing them with unique and special knowledge regarding the characteristics of the Mortgage Loans and the quality of the underwriting and servicing practices. The Defendants also acquired and pooled the mortgage loans, created the securities, and marketed and sold the Certificates at issue using purported disclosures that were wrongful and fraudulent.

FIRST CA– USE OF ACTION
(Common-law Fraud)

197. Allstate realleges each allegation above as if fully set forth herein.

198. This count is against all Defendants.

199. The material representations set forth above were fraudulent, and Defendants’ representations fraudulently omitted material statements of fact. The representations at issue are identified and summarized in Section I above and further identified in Exhibits C-K.

200. Each of the Defendants knew their representations and omissions were false and/or misleading at the time they were made. Each made the misleading statements with an intent to defraud Allstate.
201. Allstate justifiably relied on Defendants’ false representations and misleading omissions.
202. Had Allstate known the true facts regarding the Defendants’ underwriting practices and quality of the loans making up the securitizations, it would not have purchased the Certificates as it ultimately did.
203. As a result of the foregoing, Allstate has suffered damages according to proof or, in the alternative, Allstate has the right to rescind the fraudulently induced Certificate purchases and to require Defendants to repurchase the Certificates at their original cost, plus interest.

SECOND CA– USE OF ACTION
(Fraudulent Inducement)

204. Allstate realleges each allegation above as if fully set forth herein.

205. This count is against Defendants.

206. Allstate was fraudulently induced to purchase the Certificates by Defendants’ misrepresentations and omissions of material facts. The misrepresentations and omissions at issue are identified above, further identified in Exhibits C-K, and are summarized in Section I above.

207. Each of the Defendants knew their representations and omissions were false and/or misleading at the time they were made. Each made the misleading statements with an intent to induce Allstate to purchase the Certificates.

208. Allstate justifiably relied on the Defendants’ false representations and misleading omissions in purchasing the Certificates.

209. Had Allstate known the true facts, it would not have purchased the Certificates as it ultimately did.
210. As a result of the foregoing, Allstate has suffered damages according to proof or, in the alternative, Allstate has the right to rescind the fraudulently induced Certificate purchases and to require Defendants to repurchase the Certificates at their original cost, plus interest.

THIRD CA– USE OF ACTION
(Negligent Misrepresentation)

211. Allstate realleges each allegation above as if fully set forth herein.

212. Including not only the Certificates at issue here but others not part of this action, Allstate made approximately thirty-six purchases in offerings of mortgage-backed securities that Defendants securitized and sold.

213. Because Defendants arranged the securitizations, and originated or acquired, underwrote, and serviced most of the underlying mortgage loans, they had unique and special knowledge about the loans in the offerings. In particular, they had unique and special knowledge and expertise regarding the quality of the underwriting of those loans, as well as the servicing practices employed as to such loans.

214. Because Allstate could not evaluate the loan files for the mortgage loans underlying its Certificates, and because Allstate could not examine the underwriting quality or servicing practices for the mortgage loans in the offerings on a loan-by-loan basis, it was heavily reliant on Defendants’ unique, special, and superior knowledge regarding the mortgage loans when determining whether to make each investment in the Certificates. Allstate was entirely reliant on Defendants to provide accurate information regarding the loans in engaging in that analysis. Accordingly, Defendants were uniquely situated to evaluate the economics of each offering.

215. Going back six years covering thirty-six separate purchases, Allstate relied on Defendants’ unique, special and superior knowledge regarding the quality of the underlying mortgage loans and their underwriting when determining whether to invest in the Certificates at issue in this action. Allstate’s longstanding relationship with Defendants, coupled with Defendants’ unique and special knowledge about the underlying loans, created a special relationship of trust, confidence, and dependence between Defendants and Allstate.

216. Defendants were in the business of providing information for use by others,
including Allstate. Specifically, but without limitation, it was in the business of providing
information by way of the Offering Materials so that investors could rely on them in deciding
whether to invest in the securities being offered. This information was for the use of a small
class of large, institutional investors.

217. Defendants were aware that Allstate relied on their unique, special, and superior knowledge, expertise, and experience and depended upon them for accurate and truthful information in making the decision to invest in each of the Certificates. Defendants were also aware that the representations regarding the underwriting standards, as well as the Mortgage Loans underlying each of the Certificates, would be used for the particular purpose of deciding whether to invest in those Certificates. Defendants also knew that the facts regarding their compliance with their underwriting standards were exclusively within their knowledge.

218. Based on their expertise, superior knowledge, and relationship with Allstate, Defendants owed a duty to Allstate to provide complete, accurate, and timely information regarding the mortgage loans and the offerings. Defendants breached their duty to provide such information to Allstate.

219. Defendants breached their duty to provide such information to Allstate by making misrepresentations that induced Allstate’s investment in the offerings. The misrepresentations are set forth above and in Exhibits C-K. At the time Defendants made these misrepresentations, there were, at a minimum, negligent in their due diligence and/or understanding of the extent to which the Mortgage Loans underlying the Certificates complied with the underwriting guidelines and had the characteristics represented in the Offering Materials. Thus, Defendants were at the very least negligent in making statements that were false, misleading, and incorrect. Such information was known or reasonably should have been known by Defendants, and was not known or readily knowable by Allstate. In addition, Defendants knew that Allstate was acting in reliance on that information.

220. Allstate reasonably relied on the information Defendants did provide and was damaged as a result of these misrepresentations. Had Allstate known the true facts regarding Defendants’ underwriting practices and the quality of the loans making up the offerings, it would not have purchased the Certificates as it ultimately did.

221. As a result of the foregoing, Allstate has suffered damages according to proof.

Full complaint below…

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4closureFraud.org

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Allstate Insurance Co. v. Credit Suisse Securities (USA) LLC

Comments
2 Responses to “$231 Million Fraudulant MBS’s | Allstate Insurance Co. v. Credit Suisse Securities (USA) LLC”
  1. Flex says:

    Who are the deadbeats now?
    For the last year, all I hear and read is bank suing bank, insurance company suing bank, consumers suing bank, investors suing bank, SEC suing bank, AG investigating banks, Deutcshe Bank suing BOA, attorneys suing bank, judge suing bank, counties government suing banks, is there anybody else out there who does not want to suit the banks? Ooops, I missed this one, Wells Fargo suing Wells Fargo. This was a classic.
    Why don’t we all get together and suit the banksters and put them out of business once and for all?
    Or are we all going to drive our Trucks and Fords into the banks until they get the message loud and clear?
    Or are we going to wait until the AG in all 50 states do a settlement for $20 mils each state and everything goes under the rugs and nobody goes to jail?
    Did you read about Maddoffs last week in a report he said that the whole U.S. is a Ponzi Scheme? Well, is Maddoff said this is because he knows better what a Ponzi Scheme is, after all he didn’t do it alone and many people knew about it. Do you really think that the regulators from SEC at Wall St. did not know what is going on for decades? The only reason they pick on Maddoffs was because he was too big in his game. See, once you pass the billion dollars game in Fraud and Corruption, it is too hard not to get noticed even by the nicest guy from the SEC. Maybe the SEC was getting a little bit jealous for not having a piece of the game.
    Since when the public knows what is going on behind doors at Wall St. even today. For what we know, Wall St. is doing business as usual. Last time I heard, they are still doing RMBS, SECURITIZATION, PSA, CDO, CDS, and of course MERS. What? You really thought they are going to stop what they are doing, just because the country is going to hell. How can they stop what they do when this is what they only know what to do?
    Besides, who is investigating or who is regulating who? Every now and then, we hear that a Hedge Fund Manager was caught doing a Ponzi Scheme. But this is a drop in a bucket, for what is going on every single day at Wall St. when they trade Trillions of Dollars. Have you seen the price of so called COMMODITIES these days? Are you ready to pay $5.00 per gallon of gas this Summer? Or are you waiting for a Revolution?
    If you would like to indulge yourself with a song, please click on the link below. My favorite band couldn’t say it any better. Enjoy it!
    4 Non Blndes – What’s Up
    http://www.youtube.com/watch?v=ZwCt0YQPn7g
    For what is left in this country, please pray to God this madness is over and over now. Trust me, you wouldn’t want to be in the middle of Egypt and Lybia right now, Do you? God Bless America and Best of all, God Bless every one of us.
    Cheers!

  2. l vent says:

    FRAUD+CORRUPTION=BROKEN AMERICA

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