SEC Names Ex-Credit Suisse Employees in Subprime Fraud Scheme

by devteam February 2nd, 2012 | Share

Fourrnformer investment bankers and traders from the Credit Suisse Group were chargedrnby the Securities and Exchange Commission (SEC) Wednesday violating multiplernsections of the Securities Exchange Act of 1934 while trading in subprimernmortgage bonds.  The indictments allegernthe four engaged in a complex scheme to fraudulently overstate the prices of $3rnbillion of the bonds during the height of the subprime credit crisis.  </p

Thernfour are Kareem Serageldin, the group’s former global head of structured creditrntrading; David Higgs, former head of hedge trading; and two traders, Faisal Siddiqui and SalmaanrnSiddiqui.  According to the complaintrnfiled in U.S. District Court for the Southern District of New York, Serageldinrnoversaw a significant portion of Credit Suisse’s structured products andrnmortgage-related businesses. The traders reported to Higgs and Serageldin.</p

The SEC charges that the fourrndeliberately ignored specific market information showing that prices of thernsubject bonds were declining sharply, pricing them instead in a way thatrnallowed Credit Suisse to achieve fictional profits, and, through the traders,rnchanging bond prices in order to hit daily and monthly profit target and coverrnlosses.  The scheme was driven in part byrnthe prospect of lavish year-end bonuses and promotions.  The scheme hit its peak at the end of 2007.</p

“Thernstunning scale of the illegal mismarking in this case was surpassed only by therngreed of the senior bankers behind the scheme,” said Robert Khuzami, Directorrnof the SEC’s Division of Enforcement and a Co-Chair of the newly formed ResidentialrnMortgage-Backed Securities Working Group, “At precisely the moment investorsrnand market participants were urgently seeking accurate information aboutrnfinancial institutions’ exposure to the subprime market, the senior bankersrnfalsely and selfishly inflated the value of more than $3 billion inrnasset-backed securities in order to protect their bonuses and, in one case,rnprotect a highly coveted promotion.”  </p

SECrnexplained that it was not charging Credit Suisse in the scheme because thernwrongdoing was isolated; Credit Suisse reported the violations to the SEC,rnvoluntarily terminated the four, implemented internal controls to preventrnadditional misconduct, and cooperated with SEC in the investigation.  The SEC said that the four named in therncomplaint also cooperated in the investigation and that assistance was providedrnby the FBI, the U.S. Attorney’s Office for the Southern District of New Yorkrnand the United Kingdom Financial Services Authority.

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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