The U.S. Securities and Exchange Commission (SEC) has charged four former investment bankers and traders at Credit Suisse Group with ‘engaging in a complex scheme to fraudulently overstate the prices of $3 billion in subprime bonds during the height of the subprime credit crisis.’
The SEC alleges that Kareem Serageldin, Credit Suisse's former global head of structured credit trading, and David Higgs, the company's former head of hedge trading, along with mortgage bond traders Faisal Siddiqui and Salmaan Siddiqui, deliberately ignored specific market information showing a sharp decline in the price of subprime bonds under the control of their group. They instead priced the bonds in a way that allowed Credit Suisse to achieve fictional profits, according to the SEC's charges.
Serageldin and Higgs periodically directed the traders to change the bond prices in order to hit daily and monthly profit targets, cover up losses in other trading books, and send a message to senior management about their group's profitability, the SEC alleges.
The SEC adds that the mispricing scheme was driven, in part, by ‘these investment bankers' desire for lavish year-end bonuses and, in the case of Serageldin, a promotion into the senior-most echelon of Credit Suisse's investment banking unit.’
‘The stunning scale of the illegal mismarking in this case was surpassed only by the greed of the senior bankers behind the scheme,’ says Robert Khuzami, director of the SEC's division of enforcement. ‘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.’
The SEC's complaint was filed in the U.S. District Court for the Southern District of New York.