Judge Sidney Stein

One of Credit Suisse Group’s (CSG) six primary offices is in New York. CSG also is the corporate parent of broker-dealer Credit Suisse Securities (USA) (CSS). In its securities fraud suit, Israeli firm Elbit Systems sought to hold CSG liable for the conduct of two CSS brokers. Elbit’s suit hinged on the existence of an agency relationship between CSS and CSG. Seeking dismissal on the theory that Elbit should have sued CSS directly, CSG contended it was not CSS’ “control person” and that CSS was not its agent. The court rejected Elbit’s claim of reasonable reliance on “apparent authority” conferred by CSG. Its complaint did not plausibly allege that CSG held CSS to others as its agent. However, the court found Elbit alleged an actual agency relationship between CSS and CSG. Discussing the elements set out in ATSI Commc’ns v. Shaar Fund, the court concluded that Elbit adequately pleaded that CSG was CSS’ “control person.” By virtue of its purported agency relationship with CSS, CSG was alleged to have culpably participated in CSS’ fraud, and was unjustly enriched to the extent it obtained commissions and other fees on the purchase and sale of the improperly purchased securities.