SEC Names Ex-Credit Suisse Employees in Subprime Fraud Scheme

Four
former investment bankers and traders from the Credit Suisse Group were charged
by the Securities and Exchange Commission (SEC) Wednesday violating multiple
sections of the Securities Exchange Act of 1934 while trading in subprime
mortgage bonds
.  The indictments allege
the four engaged in a complex scheme to fraudulently overstate the prices of $3
billion of the bonds during the height of the subprime credit crisis. 

The
four are Kareem Serageldin, the group’s former global head of structured credit
trading; David Higgs, former head of hedge trading; and two traders, Faisal Siddiqui and Salmaan
Siddiqui.  According to the complaint
filed in U.S. District Court for the Southern District of New York, Serageldin
oversaw a significant portion of Credit Suisse’s structured products and
mortgage-related businesses. The traders reported to Higgs and Serageldin.

The SEC charges that the four
deliberately ignored specific market information showing that prices of the
subject bonds were declining sharply, pricing them instead in a way that
allowed Credit Suisse to achieve fictional profits, and, through the traders,
changing bond prices in order to hit daily and monthly profit target and cover
losses.  The scheme was driven in part by
the prospect of lavish year-end bonuses and promotions.  The scheme hit its peak at the end of 2007.

“The
stunning scale of the illegal mismarking in this case was surpassed only by the
greed of the senior bankers behind the scheme,” said Robert Khuzami, Director
of the SEC’s Division of Enforcement and a Co-Chair of the newly formed Residential
Mortgage-Backed Securities Working Group
, “At precisely the moment investors
and market participants were urgently seeking accurate information about
financial institutions’ exposure to the subprime market, the senior bankers
falsely and selfishly inflated the value of more than $3 billion in
asset-backed securities in order to protect their bonuses and, in one case,
protect a highly coveted promotion.”  

SEC
explained that it was not charging Credit Suisse in the scheme because the
wrongdoing was isolated; Credit Suisse reported the violations to the SEC,
voluntarily terminated the four, implemented internal controls to prevent
additional misconduct, and cooperated with SEC in the investigation.  The SEC said that the four named in the
complaint also cooperated in the investigation and that assistance was provided
by the FBI, the U.S. Attorney’s Office for the Southern District of New York
and the United Kingdom Financial Services Authority.

…(read more)

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