Credit Suisse Group bondholders have filed a lawsuit against Switzerland’s banking regulator over its decision to wipe out their investments during last month’s emergency government-orchestrated takeover, representing $4.5 billion (CHF4 billion) of the company’s $17 billion in wiped-out Additional Tier 1 (AT 1) bonds.

Quinn Emanuel Urquhart & Sullivan, the law firm representing the bondholders, said on Friday that the action was the first big public lawsuit launched in response to the Swiss decision to wipe away around $18 billion of Credit Suisse’s Additional Tier 1 (AT1) debt during the 3 billion Swiss franc all-share rescue transaction last month, which surprised markets and alerted litigators.

The appeal was launched on April 18 at the Federal Administrative Court in St Gallen, northeast Switzerland, against FINMA, the Swiss Financial Market Supervisory Authority that ordered the write-down. According to the case, FINMA violated the constitution by failing to act “proportionately” and “in good faith” when ordering Credit Suisse to erase the AT1 debt.

“FINMA’s decision undermines international confidence in the legal certainty and reliability of the Swiss financial centre,” said Thomas Werlen, Quinn Emanuel’s Swiss managing partner. “We are dedicated to correcting this decision, which will benefit our clients and strengthen Switzerland’s position as a key jurisdiction in the global financial system.”

Last month, FINMA stated that its decision to inflict heavy losses on some bondholders was legally sound since bond prospectuses and emergency government legislation permitted a 100% write-down in a “viability event.”

AT1 bonds were created after the global financial crisis to ensure that investors, not taxpayers, bear the cost of risk if a bank fails.

Since the bailout upended a long-standing practice of favouring bondholders above shareholders in debt collection, bondholders have sought legal counsel. Many cases have already been launched in Switzerland over the transaction terms.

The Federal Administrative Court stated that it was still receiving complaints but refused to identify claimants or comment on the number of complaints filed by bondholders or their attorneys.

According to attorneys, some investors have been trading the notes at penny prices in a so-called litigation play, wagering that successful legal claims will enhance values in the future.