Reinsurance Focus

Credit Suisse sold STMicroelectronics (“ST”) auction rate securities to manage its cash and cash equivalents, replacing prior investments in money market funds and floating rate notes, which ST had selected for their safety and liquidity. While Credit Suisse promised that it would invest only in safe and liquid instruments, it instead invested in higher risk un-guaranteed collateralized debt obligations and credit-linked notes, sending ST false transaction confirmations. When the auction rate securities market failed, ST was left holding over $400 million of securities which failed at auction. ST demanded arbitration. A three member panel issued an award in favor of ST, pursuant to which ST returned the securities in exchange for a payment of approximately $404.5 million in damages, interest and attorneys’ fees.

Credit Suisse unsuccessfully attempted to have one of the arbitrators thrown off the panel part way through the proceeding, contending that he had failed to make adequate disclosure of a prior expert witness engagement on an issue relevant to the arbitration. Affirming the District Court’s confirmation of the award, the Court of Appeals noted that Credit Suisse never asked the arbitrator for details of his expert engagements, had misstated the evidence, and had not satisfied the very high burden to show arbitrator bias or misconduct. The Court also rejected the contention that the panel had manifestly disregarded the law, finding that even if the doctrine still existed, Credit Suisse’s proof fell well short of establishing manifest disregard. While confirming the award, the Court agreed that the District Court should have credited against the amount of the award $97 million received by ST after the issuance of the award for the sale of the auction rate securities to another institution. STMicroelectronics, N.V. v. Credit Suisse Securities, No. 10-3847 (2d Cir. June 2, 2011).

This post written by Rollie Goss.