(Adds criminal case in the eighth paragraph.)
June 2 (Bloomberg) -- Credit Suisse Group AG lost its appeal of a U.S. judge’s order to pay STMicroelectronics NV, Europe’s largest chipmaker, about $400 million over unauthorized investments in auction-rate securities.
The federal appeals court in Manhattan today upheld most of a March 2010 ruling by U.S. District Judge Deborah Batts, who affirmed a 2009 arbitration award against Zurich-based Credit Suisse by the Financial Industry Regulatory Authority.
The court said Batts should have lowered the amount owed by Credit Suisse because, before her decision, Geneva-based STMicroelectronics sold securities with a face value of $153.5 million to Deutsche Bank AG.
“The district court’s judgment should have credited Credit Suisse for approximately $75 million that ST received in exchange for selling some of the failed auction-rate securities at issue in this case, and should have reduced Credit Suisse’s liability of interest accordingly,” the appeals panel wrote.
David Walker, a spokesman for Credit Suisse, said the ruling will have an “immaterial impact” on the amount of money the bank sets aside for anticipated losses.
The auction-rate securities market, once valued at $330 billion, collapsed in February 2008 when dealers stopped participating in the auctions. Interest on the investments, typically municipal and student-loan-backed bonds and preferred shares, reset every seven to 35 days at bidding managed by the dealers.
STMicroelectronics accused Credit Suisse of investing in risky securities after claiming it would invest only in student loans backed by the U.S. government.
In 2009, Julian Tzolov and Eric Butler, former Credit Suisse brokers, were convicted of fraudulently selling securities to clients, including STMicroelectronics, that cost investors more than $1.1 billion in losses. The bank claimed in court papers that the arbitration with STMicroelectronics focused too much on that case, even though Credit Suisse wasn’t charged with a crime.
Butler, convicted at a trial, was sentenced to five years in prison and is free on bail while he appeals. Tzolov, who pleaded guilty, hasn’t been sentenced yet.
In upholding the arbitration award, Batts cited a “record replete with evidence of Credit Suisse’s fraud.”
The case is STMicroelectronics NV v. Credit Suisse Securities (USA) LLC, 10-3847, U.S. Court of Appeals for the Second Circuit (Manhattan), and 09-cv-01388, U.S. District Court, Southern District of New York (Manhattan).
--With assistance from Erik Larson in London. Editors: Fred Strasser, Peter Blumberg
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