Credit Suisse was sued in Japan over bonds linked to a fund that the bank ran with now-bankrupt Greensill Capital, underscoring the legal challenges that remain for the lender and its new owner UBS Group AG.
(Bloomberg) — Credit Suisse was sued in Japan over bonds linked to a fund that the bank ran with now-bankrupt Greensill Capital, underscoring the legal challenges that remain for the lender and its new owner UBS Group AG.
Yamazaki Marunouchi Law Office filed a suit against Credit Suisse Securities (Japan) Ltd. on Friday with the Tokyo District Court, on behalf of a Japanese company and its founder seeking about 7 billion yen ($49 million) in compensation.
The plaintiffs allege the bank gave improper product explanations when it sold the securities, whose returns were tied to a supply chain finance fund which later collapsed, according to a copy of the complaint seen by Bloomberg News.
A spokesperson for Credit Suisse declined to comment. “There were problems both in the ways Credit Suisse Group operated its funds and the ways its securities unit explained about the products at the time of sales” in Japan, Taiju Yamazaki, an attorney‐at‐law at Yamazaki Marunouchi Law Office, said by email. “I’d like to clarify those points in court.”
The implosion of Lex Greensill’s supply chain finance empire in March 2021 saw Credit Suisse freeze and wind down a $10 billion group of four funds that the Swiss bank ran with his firm and had marketed to clients as safe investments. The latest suit underscores how the ripples from that scandal have spread beyond those who directly invested in the vehicles.
The plaintiffs bought four kinds of bonds whose returns were linked to the performance of the Credit Suisse Nova (Lux) Supply Chain Finance High Income Fund, according to the complaint. The securities had a leverage feature, helping to amplify returns when things go well but can lead to large losses otherwise.
Read More: Credit Suisse May Let Fund Clients Take Hit on Greensill Losses
The Swiss lender said a year ago that investors should brace for a five-year fight with insurers and some borrowers. Credit Suisse had returned $7 billion as of June 7 to investors since the funds were shuttered, according to the company. Payments to investors have slowed in recent months as the recoveries become more reliant on difficult debtors and are mired in litigation.
Neither Credit Suisse’s product manuals nor its salesperson explained to the plaintiffs that the fund was investing in not only securities backed by account receivables, which usually rely on invoices, but also those backed by so-called future receivables, the complaint said. The latter are guaranteed on sales that have not yet occurred and as a result are a far riskier investment.
A limit-loss feature embedded in the bonds also hasn’t worked the way Credit Suisse said it would, according to the complaint. Those inappropriate explanations mean that the contract for the bond sales should be canceled and that Credit Suisse should repay the principal in full, the complaint said.
–With assistance from Marion Halftermeyer.
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