Credit Suisse must pay $406 mln auction-rate award

NEW YORK Feb 13 (Reuters) - A U.S. arbitrator ordered Credit Suisse Group AG < CSGN.VX> to pay STMicroelectronics NV (STM.PA) more than $406 million to settle claims it misled the semiconductor company into buying auction-rate securities.

The award by a panel of the Financial Industry Regulatory Authority (FINRA) may spur claims by other companies that have losses from the securities.

Credit Suisse Securities USA LLC was ordered to pay $400 million of compensatory damages, and more than $6.6 million of legal costs, financing fees and interest.

STMicroelectronics, a Franco-Italian company that makes chips used in products ranging from MP3 players to automated door openers, had sought a total award of more than $477 million.

Auction-rate debt has rates that reset in periodic auctions. Regulators have accused many brokerages of misleading investors into believing the debt was safe and the equivalent of cash. After the $330 billion market seized up last February, many investors could not sell the debt, or could sell it only at a loss.

Thursday's ruling by FINRA "is a clear signal that there are opportunities for corporate and individual investors to recover their losses from broker-dealers," said Thomas Hargett, a partner at Maddox Hargett & Caruso PC, which has clients with pending FINRA arbitration claims over auction-rate debt.

"The evidence is so compelling against the major broker-dealers that sold this garbage," the Indianapolis-based lawyer said.

David Walker, a Credit Suisse spokesman, said: "We respectfully disagree with the arbitration panel's award and are reviewing our legal options." An STMicroelectronics representative declined to comment.

According to the ruling, STMicroelectronics had asked Credit Suisse to invest in "student loan securities backed by U.S. government guarantees and allege that their funds were instead invested in collateralized debt obligations, some of which were backed by subprime real estate loans."

State and federal regulators have forced brokerages to buy back more than $50 billion of auction-rate debt, and levied hundreds of millions of dollars of fines.

In September, Credit Suisse agreed to buy back $550 million of the debt from retail investors, and pay a $15 million fine.

FINRA regulates close to 5,000 brokerages. (Reporting by Jonathan Stempel; Additional reporting by Sinead Carew; Editing by Gary Hill)