Pomerantz Refuses to Let Credit Suisse AT1 Bondholders Be Left Behind
On July 7, 2025, Pomerantz secured a victory on behalf of a proposed class of investors in additional tier 1 bonds, or “AT1 bonds,” that had been issued by global financial services company Credit Suisse Group AG, when the United States District Court for the Southern District of New York denied in full the defendants’ motion to dismiss Core Capital v. Credit Suisse, et al. The investors allege that they were duped into purchasing the bank’s AT1 bonds by, among other things, false or misleading assurances from Credit Suisse and certain of its executives, including then-board chairman Axel P. Lehmann, then-CEO Ulrich Körner, and then-CFO Dixit Joshi, that customer and asset outflows had slowed or stopped. These statements allegedly concealed the risk that Credit Suisse would cease operations, which materialized when the Swiss Financial Market Supervisory Authority (“FINMA”) abruptly forced Credit Suisse to merge with fellow Swiss global financial services company UBS Group AG and, in the process, ordered Credit Suisse to write down its AT1 bonds from approximately $372 million to zero.
Background
Credit Suisse was founded in 1856, and for much of its history was a global financial giant. By 2021, however, its fortunes had been in decline for a decade as a result of corruption scandals, poor risk management, and governance control failures. Then, in March 2021, two new scandals came to light: the failure of funds the bank had structured in collaboration with financier Lex Greensill, and the collapse of hedge fund Archegos Capital Management, to which Credit Suisse was substantially exposed. As a result, the bank’s decline accelerated.
On October 27, 2022, Credit Suisse held a conference call with analysts and investors to discuss its third-quarter 2022 financial performance. During that call, the bank announced a massive increase in customer and/or asset outflows. As alleged in the plaintiffs’ complaint in this action (the “Core Capital Action”) and a parallel class action brought by investors in other Credit Suisse securities (the “Diabat Action”), rather than come clean, the defendants, including Lehmann, Körner, and Joshi, chose to downplay the outflows and conceal the true extent of risks to Credit Suisse. For example, during the October 27 call, Körner and Joshi attributed the outflows to “negative press,” “rumors,” and “social media coverage” and indicated they had “stabilized” and that Credit Suisse had plans to address the problem. Then, on December 1, 2022, Lehmann assured investors during a Financial Times interview that customer outflows had not only “completely flattened out,” but had, in fact, “partially reversed.” In addition, the following day, Lehmann said outflows “basically have stopped” and that “the situation has calmed.”
Investors were thus stunned on March 14, 2023, when the defendants admitted in Credit Suisse’s 2022 Annual Report that there were “material weaknesses” in its internal control over financial reporting. Although the defendants reassured investors they were “developing a remediation plan to address the material weaknesses,” they were instead discussing the company’s sale or liquidation with Swiss authorities. Five days later, on March 19, 2023, the other shoe dropped, and FINMA announced that it had approved a takeover of Credit Suisse by UBS via a merger, and that “[t]he extraordinary [Swiss] government support [for the Merger] will trigger a complete write-down of the nominal value of all AT1 debt of Credit Suisse in the amount of around CHF 16 billion.” Thereafter, on April 4, 2023, at Credit Suisse’s final Annual General Meeting, Lehmann admitted the company’s business had been plagued by “unhealthy developments, errant behaviors, and wrong incentive systems,” such that it engaged in “transactions that should not have been allowed to play out.” The merger closed on June 12, 2023, and a storied 166-year-old global financial institution ceased to exist.
The Diabat and Core Capital Actions
Multiple securities class action complaints were filed in the wake of Credit Suisse’s de facto collapse, and several investors moved to be appointed lead plaintiff in a consolidated action, including Ali Diabat and Pomerantz’s client, Core Capital Group, Ltd. Recognizing the massive losses incurred by AT1 bondholders, Core Capital amended its motion and sought to be appointed lead plaintiff on behalf of a class of bond investors, which it defines as separate from a class of equity investors.
On September 7, 2023, District Judge Colleen McMahon held a hearing to appoint a lead plaintiff. During that hearing, the Court acknowledged that Core Capital had the largest interest in Credit Suisse securities, but appointed Diabat as lead plaintiff on the grounds that Core Capital was likely subject to unique defenses. Specifically, the Court held that Core Capital owned AT1 bonds, which had been zeroed out at FINMA’s direction and thus were subject to the unique defense that any alleged misrepresentation by the defendants did not cause AT1 bond investors’ losses (the “AT1 Bonds”).
Diabat filed an amended complaint as the lead plaintiff in the consolidated action on October 5, 2023, on behalf of a class of “persons or entities who purchased or otherwise acquired Credit Suisse securities in domestic transactions.” Diabat’s complaint, however, did not contain any allegations concerning AT1 bonds, which strongly suggested that Diabat was not asserting claims on behalf of those investors. Accordingly, Pomerantz, on behalf of Core Capital, instituted the Core Capital action, which brought claims that substantially overlapped with claims in the Diabat action, but expressly on behalf of purchasers of AT1 bonds. Core Capital and the defendants agreed to stay their action until the Court ruled on the defendants’ motion to dismiss the Diabat action.
On September 19, 2024, the Court denied in part and granted in part the defendants’ motion to dismiss the Diabat action, holding that the defendants’ statements regarding customer outflows were sufficiently alleged to be knowingly or recklessly false or misleading and the cause of the Diabat plaintiffs’ losses, but dismissing all other claims. The following day, the Court issued an order in the Core Capital action stating that the Court would not permit any amendment of the Core Capital complaint, would rule “in this case [i.e., the Core Capital action] exactly in the same manner as I did in Diabat,” and set a schedule for a motion to dismiss.
Defendants’ Motion to Dismiss
Recognizing that the Court had already held that the defendants had made false or misleading statements regarding customer outflows, the defendants attacked the Core Capital complaint on the grounds that (i) it could not proceed as a separate action because the Court had already appointed Diabat to represent a putative class of all Credit Suisse securities holders, (ii) it did not include the allegations of a pending SEC investigation, which the Court had relied on to find that scienter adequately alleged in Diabat, and (iii) Core Capital’s losses were caused by FINMA’s order for the bank to write down the value of all AT1 bonds to zero, not the defendants’ alleged fraud.
In opposing the defendants’ motion, Pomerantz emphasized that prior rulings refusing to allow putative class actions like Core Capital to proceed in parallel to the consolidated action were under materially different circumstances because the lead plaintiffs in the prior actions had not abandoned classes of investors to pursue other claims, and in those actions, the lead plaintiff itself sought to eliminate the parallel action. Here, conversely, the defendants were asserting that the Core Capital action should be dismissed because it ostensibly interfered with Diabat’s ability to litigate the Diabat action, a highly questionable assertion given that Diabat had not complained of any prejudice from the Core Capital action and the defendants were clearly acting in their own self-interest, not in the interest of Diabat class members, in seeking to dismiss the Core Capital action. Pomerantz also asserted that the Court’s order stating that it would rule exactly as it had in Diabat applied to its scienter ruling, and thus the defendants’ scienter was sufficiently alleged, and that FINMA’s order to write down the AT1 bonds was a materialization of a concealed risk.
As the motion to dismiss the Core Capital action was pending, the plaintiff in the Diabat action moved for class certification. That motion specifically identified the securities on behalf of which Diabat sought to litigate, which did not include AT1 bonds. Recognizing that this development substantially undercut the linchpin of the defendants’ motion to dismiss, Pomerantz promptly alerted the Court to the import of the Diabat class certification motion.
The Court Sustains the Core Capital Complaint
On July 7, 2025, the Court rewarded Pomerantz’s efforts on behalf of AT1 bond investors by denying the defendants’ motion to dismiss in full and explicitly allowing the Core Capital action to proceed in parallel with Diabat. First, the Court found that the Diabat complaint’s allegations were incorporated by reference into the Core Capital complaint and held that scienter was thus adequately alleged. Second, the Court observed that, as Pomerantz argued, the defendants’ statements concealed the degree of risk that Credit Suisse would cease operating and AT1 bonds would be written down to zero, thus preventing investors from adequately assessing that risk. Accordingly, the Core Capital complaint adequately alleged that FINMA’s actions represented the materialization of a concealed risk. Third, the Court found that Diabat had abandoned claims by AT1 bondholders and allowed the Core Capital action to proceed in parallel because “the potential prejudice that the AT1 bondholders could face from being saddled with a lead plaintiff who has already abandoned them outweighs any yet-to-be-seen interest by Diabat in preventing Core Capital from picking up the claims he has dropped,” and “I refuse to disenfranchise claimants whose claims have already been abandoned by a lead plaintiff in the original action.”
Conclusion
No one would fault an attendee of the September 2023 lead plaintiff hearing for concluding that the Court had expressed grave doubts about the viability of claims on behalf of AT1 bondholders. Rather than leave those investors to fend for themselves, however, Pomerantz recognized the viability of their claims and fought for the opportunity to vindicate them. The Court agreed, and Pomerantz is excited to pursue those claims on behalf of investors blindsided by the defendants’ alleged misrepresentations.