Credit Suisse auction-rate debt suit may start frenzy.

Fri Aug 8, 2008 8:34am
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By Duncan Martell

SAN FRANCISCO (Reuters) - Europe's largest computer chip maker STMicroelectronics NV (STM.PA: Quote, Profile, Research, Stock Buzz) has sued Credit Suisse (CSGN.VX: Quote, Profile, Research, Stock Buzz) for allegedly placing $450 million of its cash into auction-rate securities without authorization, and said a dozen or more companies with billions invested were victimized.

STMicro claimed in its lawsuit that "at least a dozen other multinational corporations are victims of the same scheme carried out by the same group of brokers and directors at Credit Suisse Securities and furthered by Credit Suisse."

STMicro said it believed more than $2 billion of these clients' money ended up invested in auction-rate securities.

"The banks are playing chicken here, thinking that companies like STMicro aren't going to take the steps they did," said Steve Williams, a plaintiffs attorney at law firm Cotchett, Pitre & McCarthy in Burlingame, California. "Banks are going to be very mistaken in that judgment, and I think a lot of big entities are going to start filing these to get their cash out."

He forecast corporations scrambling to make up their losses by piling on in legal attacks against Wall Street banks and accusing bankers of assuring investors that their cash was being placed in conservative investments, not in auction-rate securities. That market froze early this year.

Already, nonfinancial companies such as drugmaker Bristol-Myers Squibb Co (BMY.N: Quote, Profile, Research, Stock Buzz), networking gear maker Ciena Corp (CIEN.O: Quote, Profile, Research, Stock Buzz), software firm Lawson Software Inc (LWSN.O: Quote, Profile, Research, Stock Buzz) and others have cited so-called structured investment vehicles such as asset-backed securities as hitting profits.

Canadian drugmaker Biovail Corp (BVF.TO: Quote, Profile, Research, Stock Buzz) said in a May 12 filing with the U.S. Securities and Exchange Commission that it had undertaken arbitration proceedings against Credit Suisse over auction-rate securities. It is seeking $27 million in damages and $54 million in punitive damages.

ST Micro alleges in the August 6 complaint filed in federal court in Brooklyn, New York, that by late 2006 Credit Suisse knew that collateralized debt obligations, especially those linked to subprime loans, were risky investments and began to decrease its exposure to them.

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