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New York's highest court rules for three-year statute of limitations in fraud case against Credit Suisse Securities

By Charmaine Little | Jun 20, 2018

ALBANY, N.Y. (Legal Newsline) – The New York Court of Appeals has ruled on the statute of limitations in a fraud case filed by the state Attorney General's Office.

The Court of Appeals decided the main question of the case is whether allegations via the Martin Act include three- or six-year statute of limitation periods. It noted because the regulation in question goes beyond claims that one is liable and committed fraud, “we conclude that CPLR 214(2) — covering [a]ctions to recover upon a liability, penalty or forfeiture created or imposed by statute’ controls” and that the three-year statute applies, according to the June 12 ruling. 

It ultimately sent the case back to the Supreme Court regarding the executive law claims. 

Former New York Attorney General Eric Schneiderman, who has since resigned amid an abuse scandal, filed the lawsuit in November 2012 after an ongoing investigation into defendants Credit Suisse Securities (USA) LLC and its affiliate with claims the defendants infringed on the Martin Act in 2006 and 2007. 

"The complaint alleges that defendants committed multiple fraudulent and deceptive acts in connection with the creation and sale of residential mortgage-backed securities (RMBS)," the ruling states.

Schneiderman alleged the defendants made investors think they were carefully monitoring the quality of loans in the RMBS. Instead, the attorney general alleges the defendants were fully aware of deficiencies in the screening process for loans but never informed investors.

The defendants responded to the lawsuit with a motion to dismiss on grounds it was time barred, which the attorney general challenged and stated the Martin Act had a six-year statute of limitation. The Supreme Court denied the motion to dismiss. The defendants later filed a timely appeal. 

The appeals court first determined if the Martin Act violation claims are protected under the CPLR 214(2), imposing a three-year or six-year limitation period in CPLR 213)1) or 213(8). It decided the three-year statute of limitation protects the Martin Act claims.

"Nevertheless, because four members of the court have now concluded that the attorney general’s causes of action filed under the Martin Act are subject to a three-year statute of limitations, even for those causes of action grounded on fraud known to the courts at the time of the enactment of the statute, it now falls to the legislature to correct this error before significant damage is done to the state’s securities markets," the ruling stated.

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Credit Suisse New York Attorney General New York Court of Appeals

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