* Credit Suisse accused of missing giant fraud
* National Century ex-CEO got 30-year prison term
By Jonathan Stempel
NEW YORK, Jan 25 (Reuters) – Credit Suisse Group Inc
faces a potential $2 billion of exposure over fraud
that occurred a decade ago at National Century Financial
Enterprises, a result of a federal judge’s determination on how
to apportion responsibility.
Friday’s decision by U.S. District Judge James Graham could
expose the Swiss bank to hundreds of millions of dollars of
added liability over the activities of Lance Poulsen, who
co-founded National Century in 1990 and was its chief executive.
He is now serving a 30-year prison term and is presumed
insolvent.
The decision is also a victory for bondholders including the
state of Arizona, AllianceBernstein Holding LP, Lloyds
TSB Bank Plc, MetLife Inc, Allianz SE’s
Pimco unit that accused Credit Suisse of deceiving it
about the company and missing its estimated $2.9 billion fraud.
“Credit Suisse and Mr. Poulsen are the last remaining
defendants in this very serious case, and we are confident that
our clients will prevail at trial,” Kathy Patrick, a lawyer for
some of the bondholders, said in a telephone interview.
Jack Grone, a Credit Suisse spokesman, declined to comment.
Harold Levison, who represents MetLife and Lloyds, did not
immediately respond to a request for comment.
Patrick estimated that there are more than $1.5 billion of
bondholder claims against Credit Suisse, the placement agent for
many of National Century’s notes.
But the payout could be augmented by interest that has
accumulated in more than nine years of litigation.
According to a transcript of a Jan. 7 court hearing, Graham
said “there seems to be general agreement that if the plaintiffs
succeed in this litigation, they would recover something in the
range of almost $2 billion.”
A trial is scheduled for April 1.
NO SHIFTING OF LIABILITY
National Century had helped finance hundreds of clinics,
hospitals and other service providers, and bought accounts
receivable from these providers with money it got by selling
notes to investors.
But the U.S. Department of Justice said National Century
misused investor money, funneled corporate funds to top
executives, and lied to investors to hide the fraud. The Dublin,
Ohio-based company filed for bankruptcy protection in November
2002.
Credit Suisse had sought a ruling that it should not be
solely liable for any fraud attributable to Poulsen, who is now
69 and is the only other defendant remaining in the case.
But Graham said that under New York law, the bank could be
held fully responsible for Poulsen’s wrongdoing if a jury found
they jointly caused bondholder losses.
“Even if Credit Suisse could prove at trial that Poulsen is
insolvent, its argument that responsibility for some portion of
his share should be shifted away from Credit Suisse and
redistributed among the settling defendants finds no support in
the (law),” he wrote.
The judge normally sits in Columbus, Ohio, but the lawsuits
were recently moved to Manhattan federal court and his opinion
was made publicly available there.
The cases, all in the U.S. District Court, Southern District
of New York, are Crown Cork & Seal Co et al v. Credit Suisse
First Boston Corp et al, No. 12-05803; Arizona v. Credit Suisse
First Boston Corp et al, No. 12-05804; City of Chandler et al v.
Bank One NA et al, No. 12-05805; Lloyds TSB Bank Plc v. Bank One
NA et al, No. 12-07263; and Metropolitan Life Insurance Co et al
v. Bank One et al, No. 12-07264.
