The National Credit Union Administration sued Credit Suisse Group on Thursday, charging the Zurich-based company with misleading three corporate credit unions about the riskiness of mortgages that backed securities Credit Suisse bundled and sold to them. The three credit unions, which failed in 2010, sustained heavy losses from the transactions, the lawsuit says.

Separately, the U.S. Justice Department and the New York attorney general are probing the company's handling of mortgage-backed securities,  Reuters reported Thursday.

Credit Suisse disregarded its own measures for assessing whether borrowers who took out mortgages that underpinned the securities had the means to repay their loans, and whether sufficient collateral secured the loans in the event of default, according to the NCUA lawsuit. It was filed in U.S. District Court in Kansas City, Kan.

"Credit Suisse is one of several firms that sold faulty securities to corporate credit unions, which led to their collapse," NCUA chairman Debbie Matz said in a news release. "These Wall Street firms ran a bait-and-switch operation, and the effects were felt not only in credit unions, but throughout the financial industry."

A Credit Suisse spokesman declined to comment on both the lawsuit and the news report of a possible federal-state probe into the companies' underwriting.

Credit Suisse sold roughly $128 billion in residential mortgage-backed securities over a seven-year period beginning in January 2004, according to a Credit Suisse filing with the Securities and Exchange Commission last year.

The NCUA filed the suit against Credit Suisse and IndyMac, which originated mortgage loans and was later seized by regulators in 2008, on behalf of U.S. Central Federal Credit Union in Lenexa, Kan.; Western Corporate Federal Credit Union in San Dimas, Calif.; and Southwest Corporate Federal Credit Union, in Plano, Texas.

The three credit unions purchased roughly 20 slices of mortgage-backed securities based on allegedly untrue statements by Credit Suisse in documents that accompanied the offerings, according to the suit. "If the credit unions had known about the originators' pervasive disregard of underwriting standards—contrary to the representations in the offering documents—the credit unions would not have purchased the certificates," the suit said.

The suit, which mirrors actions by the agency against JPMorgan Chase, Royal Bank of Scotland, Goldman Sachs, Wachovia, UBS and Barclays, demands compensation for losses to a federal fund created by Congress in 2009 to stabilize credit unions.

On Monday, the New York Attorney General Eric Schneiderman filed a civil suit against JPMorgan Chase, charging that the Bear Stearns brokerage it bought in March 2008 committed fraud in the sale of hundreds of billions of dollars in mortgage-backed securities on the eve of the housing crisis. That suit involves actions by Bear Stearns before it acquired the firm, JPMorgan has said.

Schneiderman, who co-chairs a federal-state task force formed in January to probe misconduct in the mortgage market, told reporters that investigators are prepared to bring more actions against companies involved in the housing meltdown.



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