New York: Credit Suisse Group AG was sued by a small pension fund that alleges the bank misled investors and let “high-risk clients” including Greensill Capital and Archegos Capital Management take on too much leverage, in one of the first lawsuits since the twin debacles.
The Michigan pension fund, City of St. Clair Shores Police & Fire Retirement System, filed the suit on Friday in federal court in Manhattan, seeking to represent all shareholders who bought Credit Suisse American depositary receipts between Oct. 29 and March 31.
The fund alleges that the bank “concealed material defects in the company’s risk policies and procedures and compliance oversight functions and efforts to allow high-risk clients to take on excessive leverage,” exposing the bank to “billions of dollars in losses.”
A representative of Credit Suisse declined to comment on the lawsuit.
Greensill was left fighting for survival last month as investors cut ties over worries about the creditworthiness of its borrowers. Credit Suisse, citing valuation concerns, moved to wind down a $10 billion group of supply chain finance funds linked to financier Lex Greensill.
The meltdown at Archegos, the family office of investor Bill Hwang, unfolded as some of his biggest wagers started to move against him – positions he’d built with significant amounts of borrowed money. Archegos relied on that leverage to supercharge its returns, setting Hwang up for the financial disaster that befell him and roiled the market.
When banks that had extended credit to Archegos saw Hwang’s bets turn south, they required the firm to put up more money to cover the decline. When it couldn’t, they began to liquidate Hwang’s portfolio, which included Chinese technology companies and U.S. media giants such as ViacomCBS Inc. and Discovery Inc.
The rout has inflicted billions of dollars in losses on some of the banks, notably Credit Suisse and Nomura Holdings Inc. Others, including Goldman Sachs Group Inc., got out early.