A federal appellate court has denied Credit Suisse’s attempt to overturn a $431 million arbitration award in favor of STMicroelectronics NV in a case involving auction rate securities, according to Ian Thoms’ Law360 article entitled “2nd Circ. Downs Credit Suisse Appeal Of $431M Award.”
The dispute arose out of Credit Suisse’s sale of high-risk auction rate securities backed by CDOs and credit-linked notes rather than the federally guaranteed student loan securities specifically authorized by STMicroelectronics.
“Credit Suisse attacked the arbitrators for various improprieties and asked the district court and now this court to undo the award,” the Second Circuit wrote in its opinion, adding: “We have given Credit Suisse’s attacks on the arbitral award careful attention and find them without merit.”
The Second Circuit directed the district court to reduce the $431 million award by the $75 million STMicroelectronics has already received, according to the article, leaving Credit Suisse on the hook for $356 million.
Credit Suisse had argued that the panel’s award was “issued in manifest disregard to the law” because it compelled the investment bank to “pay out nearly half a billion dollars without providing a single reason.” The Second Circuit rejected that argument.
“Credit Suisse has grasped unsuccessfully at straws to avoid payment of the arbitration award in this case, and its motion to vacate the award is denied,” the court was quoted as writing.
ARS are long term bonds or preferred stocks with interest rates or dividends that are reset periodically through an auction. They were sold as safe, short-term, liquid, cash equivalent parking places for money. The $330 billion market for auction rate securities went bust in mid-February 2008 amid the growing financial crisis when the market makers decided to stop supporting the auctions.
The case is STMicroelectronics NV v. Credit Suisse Securities (USA), case number 10-3847, in the U.S. Court of Appeals for the Second Circuit.
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