Credit Suisse Group AG was ordered to face a lawsuit by New York's attorney general accusing the bank of fraud in sales of mortgage-backed securities before the recession.

A New York State Supreme Court judge rejected the bank's request to dismiss the lawsuit, which demands as much as $10 billion in damages. Attorney General Eric Schneiderman's suit was valid, and he demonstrated the bank may have engaged in misconduct, Judge Marcy Friedman said in yesterday's decision.

The ruling may strengthen Schneiderman's hand in punishing other banks in the future over liability for the financial crisis.

"We will appeal this particular decision and continue to defend ourselves in this case," Drew Benson, a spokesman for Zurich-based Credit Suisse, said in an e-mail today.

Schneiderman sued Credit Suisse in November 2012, claiming Switzerland's second-largest bank misrepresented the risks of investing in mortgage-backed securities. Last year, the bank argued in a court hearing in Manhattan that New York missed a three-year deadline for suing. The state countered that it had six years to file its complaint.

If the bank had won, Schneiderman would have faced a new roadblock as he considers similar multibillion-dollar claims against other Wall Street firms.

Armed with the Martin Act, New York's powerful anti-fraud tool, Schneiderman has sought to pursue those claims while introducing programs to provide relief for struggling homeowners and stem the rise in foreclosures. Under the Martin Act, "false promises" by sellers of securities are a violation.

JPMorgan Chase & Co., also sued by Schneiderman's office, agreed to settle that case along with federal claims over mortgage-backed securities in a landmark $13 billion accord last year. The state got $613 million in the settlement, the first in a string of payouts it has received in legal agreements over the financial instruments.

In July, Citigroup Inc. agreed to pay $7 billion in fines and consumer relief to resolve claims by the federal government and states including New York. The following month, Bank of America Corp. agreed to pay about $17 billion, including almost $10 billion in cash, to resolve civil investigations by federal and state prosecutors, including Schneiderman.

In New York's lawsuit against Credit Suisse, Schneiderman claimed the bank ignored warning signs about the quality of loans it was packaging and selling. One example cited was its use of New Century Financial Corp. mortgages after that firm's 2007 bankruptcy.

"We look forward to continuing our case against Credit Suisse and pursuing accountability for those who contributed to the near collapse of our economy," Elizabeth DeBold, a spokeswoman for Schneiderman, said in an e-mail.

The case is People of the State of New York v. Credit Suisse Securities (USA) LLC, 451802-2012, New York State Supreme Court, New York County (Manhattan).

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