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Why was the Canadian Imperial Bank of Commerce at fault?

The Canadian Imperial Bank of Commerce was sued after the American housing market crashed in 2008. It was a huge lawsuit that launched with a multi-billion dollar goal. So, why was the CIBC at fault, considering the crash happened in the United States?

The problem was the way that the CIBC represented itself to those who were looking to invest. It tried to make it appear that the risk was not as great as it was in reality.

More specifically, it has been said that the bank downplayed the magnitude of the risk that the U.S. subprime residential mortgage investments posed. It said that there were no major issues involved with the market and the bank's exposure to what was happening across the border. This went for both unhedged and hedged investments.

However, as hindsight now shows, the CIBC was exposed to a severe level of risk, as it stood to lose billions if the American market crashed. It did just that, tanking out at an astounding rate and putting the U.S. into the worst economic situation since the Great Depression in the 1930s.

Had those looking to invest been properly told about the risks, there would be no issue here. There is always risk with investing. However, the bank was said to be deceitful, deliberately trying to bait investors into poor investments that turned into losses.

This case shows that transparency and honesty are required in investing. Those who feel they have been tricked into poor investments or not given all of the information they deserve may be able to seek compensation in Ontario.

Source: Rochon Genova, "Class Action Commenced Against CIBC," accessed July 15, 2016

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