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Credit Suisse traders 'manipulated IT systems' to hide losses

Leo King | Feb. 6, 2012
Two traders at Credit Suisse have pleaded guilty to wire fraud and falsifying data after authorities said they had manipulated the bank's record systems, as the credit crunch approached, in order to help conceal over half a billion dollars' worth of losses.

Two traders at Credit Suisse have pleaded guilty to wire fraud and falsifying data after authorities said they had manipulated the bank's record systems, as the credit crunch approached, in order to help conceal over half a billion dollars' worth of losses.

The traders admitted to circumventing a mandatory real time reporting system introduced by Credit Suisse, manually entering false profit and loss (P&L) figures as the products they handled collapsed in value. They did so, according to the accusations, under heavy pressure from their manager, who has also been charged.

The pleas come after a four-year investigation that involved the FBI trawling through thousands of financial records, emails and recorded phone calls - some of which provide potentially devastating evidence. The FBI and US Attorney have insisted they are determined to hold individuals responsible for any possible part they played in the economic crisis.

The traders, David Higgs, 42, and Salmaan Siddiqui, 36, pleaded guilty to attempting to manipulate around $3 billion in subprime mortgage-backed securities on order to reduce how bad losses looked. A large amount of the alleged activities took place in Credit Suisse's London offices in Canary Wharf, as well as in New York.

Their line manager, Kareem Serageldin, 38, has been charged with falsifying records and with wire fraud. Serageldin, who was the managing director of structured credit at the bank, lives in the UK, and will be expected to travel to the US to face the charges. It is understood he may contest the charges.

The three are also facing civil charges from US financial regulator the Securities and Exchange Commission. Credit Suisse itself has not been charged by the FBI or SEC.

Subprime mortgages are essentially loans issued to customers whom the banks expect to have more difficulty paying - and are charged at a higher interest rate. Those mortgages and the complex investment vehicles attached to them were widely blamed as playing a key role in triggering the current economic crisis.

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In 2008, Credit Suisse took a $2.65 billion writedown from the credit crunch, much from complex products, known as collateralised debt obligations and linked to subprime mortgages. It blamed a number of its traders for mispricing the products, but also admitted internal control failures.

The traders and their manager in the FBI and SEC cases are accused of contributing over $500 million to this writedown.

The SEC said in a statement that the traders "deliberately ignored specific market information showing a sharp decline in the price of subprime bonds ... They instead priced them in a way that allowed Credit Suisse to achieve fictional profits.

"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."

 

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