Credit Suisse Securities (USA) LLC and Merrill Lynch each agreed to multi-million fines to settle FINRA charges they misrepresented delinquency data and inadequate supervision in connection with the issuance of residential subprime mortgage securitizations, RMBS's.

Issuers of subprime RMBS are required ... to disclose historical performance information for past securitizations that contain mortgage loans similar to those in the RMBS being offered to investors.  Historical delinquency rates help investors to assess the value of RMBS's and to determine whether future returns may be disrupted by mortgage holders' failures to make loan payments.  As there are different standards for calculating delinquencies, issuers have to disclose the specific method it used to calculate delinquencies.

    Credit Suisse's Alleged Misrepresentations.   In 2006, Credit Suisse misrepresented the historical delinquency rates for 21 subprime RMBS's it underwrote and sold.  Credit Suisse supposedly knew of these inaccuracies, but it did not sufficiently investigate the delinquency errors;  nor did it inform clients who invested in these securitizations of the specific reporting discrepancies, or correct the information on the website.  Credit Suisse also failed to name or define the methodology used to calculate mortgage delinquencies in 5 other subprime securitizations.  FINRA added that Credit Suisse lacked adequate procedures to supervise the maintenance and updating of relevant disclosure on its website. 

For 6 of the 21 securitizations, the delinquency errors were significant enough to affect an investor's assessment of subsequent securitizations, as it was referenced in 4 subsequent RMBS investments.

    Merrill Lynch's Alleged Misrepresentations.  In a separate case, Merrill Lynch negligently misrepresented the historical delinquency rates for 61 subprime RMBS it underwrote and sold.  In June 2007, Merrill Lynch promptly recalculated the information and posted the corrected historical delinquency rates on its website, after learning of the delinquency errors.  Merrill Lynch similarly lacked adequate procedures to supervise and review its reporting of historical delinquency information. 

Merrill Lynch, which was acquired by Bank of America on 1/1/09, continues to do brokerage business under its own individual broker-dealer registration.

In 8 instances, the delinquencies were significant enough to affect an investor's assessment of subsequent securitizations, as it was referenced in 5 subsequent RMBS investments.

    FINRA Staff Credits.   Allen Boyer, Andrew Kampel, Penny Rosenberg conducted the CS and ML investigations, under the supervision of Enforcement Chief Counsel Susan Light.

For further details, and to access the AWC's for Credit Suisse and Merrill Lynch, go to:   [FINRA News Release, 5/26/11, "FINRA Fines Credit Suisse .."]