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Credit Suisse to pay $400-million to end U.S. bond lawsuits

Trams drive past the offices of Swiss banks UBS, left, and Credit Suisse at Paradeplatz square in Zurich in a file photo.

© Arnd Wiegmann/REUTERS

Credit Suisse Group AG has agreed to pay at least $400-million (U.S.) to settle lawsuits by investors over the Swiss bank's role in raising money for a health-care financing company that collapsed in a $2.9-billion fraud more than a decade ago.

The settlement averts a trial in Manhattan federal court that had been scheduled to begin in two weeks. It stems from the activities of National Century Financial Enterprises Inc., which filed for bankruptcy protection in November of 2002.

Investors accused Credit Suisse of selling National Century notes and defending their creditworthiness despite knowing that the company misused investor funds, and while missing red flags that National Century co-founder and chief executive Lance Poulsen masterminded the fraud.

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"This agreement represents a full and final settlement in respect of this noteholder litigation against Credit Suisse," Credit Suisse said in a statement on Thursday.

Credit Suisse will pay $400-million to a group of plaintiffs that includes the state of Arizona, AllianceBernstein Holding LP and Allianz SE's Pimco unit, the plaintiffs' lawyer, Kathy Patrick of Gibbs & Bruns, said in a phone interview.

Investors who brought the lawsuits had bought National Century notes from 1998 to 2002.

In addition to the $400-million accord with Gibbs & Bruns's clients, Credit Suisse has also agreed to separate settlements with Lloyds TSB Bank PLC and MetLife Inc.

Lloyds TSB spokesman Ed Petter confirmed the settlement but said its terms were confidential. MetLife spokesman Christopher Breslin said his company reached an "amicable resolution" to the case, addling it was glad "to put this issue to rest."

Credit Suisse said the settlement will reduce its previously reported fourth-quarter net profit by 134-million Swiss francs ($141-million U.S.), to 263-million Swiss francs from 397-million.

National Century had helped finance clinics and hospitals, and bought accounts receivable with money it got through the sale of notes, including notes that Credit Suisse helped sell.

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But the U.S. Department of Justice said the Dublin, Ohio-based company misused investor money, funnelled corporate funds to top executives, and lied to investors to hide its fraud.

Mr. Poulsen is serving a 30-year prison term following his 2008 conviction for fraud, conspiracy and money laundering. Several other former National Century executives were also convicted of crimes.

Jury selection in the investor suit had been scheduled to begin on March 28.

Credit Suisse in January lost its bid to be tried separately from Mr. Poulsen, who is considered insolvent.

Note holders had previously reached other settlements over the collapse, including a 2006 accord with JPMorgan Chase & Co.

"We have recovered $1-billion of losses for our clients, when prior settlements are taken into account," Ms. Patrick said. "This represents nearly 80 cents on the dollar."

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