Securities Regulation Daily Wrap Up, FRAUD AND MANIPULATION—S.D.N.Y.: Fraud claims against Credit Suisse and execs survive dismissal, case is consolidated with related actions, (Mar 31, 2026)

By Kristin J. Angelino, J.D.

Plaintiffs’ claims under New Jersey’s RICO statute were dismissed for failing to prove a distinct enterprise.

The Southern District of New York granted in part, and denied in part, defendants’ motion to dismiss fraud and racketeering claims brought against Credit Suisse and two of its executives for allegedly falsely assuring the market, in the period immediately preceding the bank’s March 2023 collapse and emergency rescue, that the bank’s position was sound. The court denied defendants’ motion to dismiss plaintiffs’ fraud claims because plaintiffs adequately plead that their purchases were domestic transactions, and the court dismissed plaintiff’s racketeering claims because plaintiffs failed to plead a cognizable enterprise. The court also granted defendants motion for consolidation of this action, for pretrial purposes, with two related actions. (Palomino Master Ltd. v. Credit Suisse Group AG, No. 1:23-cv-05874 (S.D.N.Y. Mar. 26, 2026)).

Plaintiffs brought this action against Credit Suisse and its former Chairman and former CEO, alleging violations of Exchange Act Sections 10(b) and 20(a), and Rule 10b-5 thereunder, and New Jersey’s Racketeering Influenced and Corrupt Organizations Act, in connection with plaintiffs’ purchase of Credit Suisse’s Additional Tier 1 Bonds (AT1 Bonds).

Domestic transactions. Defendants argued that plaintiffs’ claims under Section 10(b) and Rule 10b-5 failed because the complaint did not plausibly allege that plaintiffs purchased the AT1 Bonds in domestic transactions. The court disagreed.

The court relied on the test outlined in Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010) which stated that, for securities not registered on domestic exchanges—like the AT1 bonds—the claim depends on whether plaintiffs allege “domestic transactions in other securities.” The court also relied on the case of Absolute ActivistValue Master Fund Ltd. v. Ficeto, 677 F.3d 60 (2d Cir. 2012), which held that plaintiffs must allege that “irrevocable liability was incurred or that title was transferred within the United States.” The court noted that plaintiffs’ complaint alleged that, at the time plaintiffs purchased the AT1 Bonds, (1) the bonds were trading in the United States; (2) plaintiff Appaloosa “received quotes in U.S. dollars”; (3) plaintiffs paid for the bonds in U.S. dollars; (4) the counterparties executing plaintiff Appaloosa’s trades were based in the United States; and (5) Appaloosa’s traders “were all located in New Jersey when the orders were placed.”

The court held that plaintiffs’ allegations bore directly on at least three of the factors identified in Absolute Activist: “the placement of purchase orders,” “the passing of title,” and “the exchange of money,” therefore they plausibly supported the inference that plaintiffs incurred irrevocable liability in the U.S. to take and pay for the AT1 Bonds. The court noted that neither Absolute Activist nor its progeny require, at the motion-to-dismiss stage, that the complaint identify, “with documentary precision, the exact instant” at which each of plaintiffs’ trades became irrevocable.

The court dismissed defendants’ arguments against domesticity because they “improperly isolate individual facts and treat them as dispositive.” Instead, the court said the inquiry is “akin to the multifactor analysis courts employ in resolving transnational choice-of-law problems.”

The court further stated that, since defendants did not challenge the sufficiency of plaintiffs’ allegations as to falsity, scienter or materiality, the court assumed that those elements were adequately pleaded.

SLUSA does not require dismissal. Defendants next argued that plaintiffs’ New Jersey RICO claims are barred by the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”), which bars certain state-law class actions alleging material misstatements in connection with the purchase or sale of a covered security. The court disagreed, holding that the complaint clearly alleges fraud in connection with purchases of uncovered securities, therefore SLUSA does not apply.

The court rejected defendants’ argument that, because the same alleged misstatements also overlapped with claims asserted in another fraud action against Credit Suisse, SLUSA applies. The court held that plaintiffs’ complaint makes it clear that plaintiffs’ case is not (1) a feeder-fund case; (2) a disguised covered-security case, or (3) a case in which plaintiffs bought an interest in one instrument that represented an ownership stake in covered securities.

RICO distinctiveness requirement. Turning to plaintiffs’ New Jersey RICO claim, the court held that, as a threshold matter, plaintiffs failed to plead a distinct enterprise. Plaintiffs’ complaint alleged that the enterprise was “operated, managed, and controlled by, among others, [the defendants],” and that its purpose was to prevent a bank run by disseminating misleading statements about Credit Suisse’s financial condition. However, the court held that those allegations described “nothing more than Credit Suisse acting through its Chairman and Chief Executive Officer in the course of managing the corporation’s affairs.” The court applied two distinct requirements from caselaw—that the enterprise must be distinct from the pattern of racketeering activity and that the RICO “person” must be distinct from the enterprise—to explain its conclusion.

First, the court held that the alleged enterprise is not distinct from the racketeering conduct, since the purported enterprise had “no structure, purpose, or identity apart from the alleged dissemination of misleading statements undertaken to stabilize Credit Suisse’s financial condition.” Second, the court held that plaintiffs’ alleged enterprise is not distinct from the RICO persons, since “even apart from the conduct, the alleged enterprise collapses into the defendants themselves. A corporation acting together with its own officers and agents, within the scope of their corporate roles, does not constitute an enterprise separate from the corporation itself.” The court added that the question is not whether the conduct is lawful or not; it is whether there is an entity distinct from both the conduct and the actors.

Because plaintiffs failed to plead a substantive RICO violation, the court held that their conspiracy claim also must be dismissed as a matter of law.

RICO agreement requirement. Even though the court held that plaintiffs’ failed to adequately allege a cognizable enterprise, the court nonetheless also concluded that plaintiffs failed to plausibly allege “an agreement among defendants to participate in the conduct of that enterprise’s affairs through a pattern of racketeering activity.” The court held that the conspiracy allegations in plaintiffs’ complaint were “wholly conclusory:” plaintiffs only generally asserted that defendants “agreed,” “conspired,” or “participated” in a scheme, but they did not plead any facts suggesting when the alleged agreement was formed, what its terms were, or how the defendants manifested assent to it. Nor did plaintiffs plead facts supporting a plausible inference that defendants knowingly agreed to the commission (whether personally or through others) of at least two incidents of racketeering conduct as part of a coordinated enterprise.

Consolidation. The court held that consolidation of this action with two related Credit Suisse cases for pre-trial purposes was appropriate, since the related actions presented “substantially” overlapping claims arising from the same alleged misstatements, the same March 2023 collapse of Credit Suisse, and the same alleged corrective disclosures and materializations of risk.

The case is No. 1:23-cv-05874.

Judge: McMahon, C.

Attorneys: Craig J. Geraci (Kahn Swick & Foti, LLC) for Ali Diabat. Michael J. Hampson (Rolnick Kramer Sadighi LLP) for Palomino Master Ltd., Azteca Partners LLC and Appaloosa LP. Guillermo Carlo Artiles (McCarter & English LLP) for Credit Suisse Group A.G.

Companies: Palomino Master Ltd.; Azteca Partners LLC; Appaloosa LP; Credit Suisse Group A.G.

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