Kareem Serageldin, the ex-global head of Credit Suisse Group AG’s CDO business charged in a bonus-boosting fraud tied to a $5.35 billion trading book, was surprised by the U.S. indictment since he has been cooperating with investigators for four years, his lawyer said.
Serageldin, 38, a U.S. citizen who lives in England, was charged in Manhattan federal court for masterminding a scheme to fake collateralized debt obligation data to meet targets and protect end-of-year bonuses. Two of his former subordinates, David Higgs, 42, and Salmaan Siddiqui, 36, pleaded guilty Feb. 1 in New York to manipulating prices at Serageldin’s direction. The men were also sued by the U.S. Securities and Exchange Commission.
Manhattan U.S. Attorney Preet Bharara, whose office is prosecuting the case, urged Serageldin after the indictment was unsealed to come to the U.S. to face the charges. Serageldin’s lawyer said his client was blindsided by Bharara’s prosecution because he has been fully cooperating with U.K. and U.S. investigators, including Bharara.
“I have been in touch with the government to discuss the matter,” James McGuire, a lawyer for Serageldin in New York, said yesterday in a phone interview. “He’s studying his options.” Serageldin denied any wrongdoing.
Higgs and Siddiqui both implicated their former boss, saying Serageldin told them to overstate the value of mortgage-backed assets in a Credit Suisse trading book after the collapse of the U.S. housing market. Both men, who have plea agreements with the government, face sentences of as long as five years in prison on one count of conspiracy, the U.S. said.
Serageldin was charged with conspiracy, falsification of books and records and wire fraud. While the conspiracy charge carries a maximum five-year term, the wire fraud and falsification of books and records counts each carry a term of as long as 20 years in prison.
“We were surprised by the indictment if not the SEC complaint,” McGuire said in the interview yesterday. “We only learned of this last night for the first time. As you can imagine, my client is studying the complaint, conferring with counsel and considering his options.”
Serageldin learned he was the subject of criminal charges and the SEC lawsuit last night, McGuire said.
The attorney said his client has done nothing wrong, and has been cooperating with a four-year investigation by regulators in the U.K. and in the U.S., as well as the Manhattan U.S. Attorney’s Office.
‘Last Four Years’
“Through my colleagues in London and in the last four years, he’s had no fewer than five to six lengthy interviews, I’m talking meetings that lasted many hours at a time, where these issues were discussed completely,” McGuire said. “He’s cooperated fully, fully explaining what he knew, never taking the Fifth Amendment,” he said, referring to the U.S. constitutional right against self incrimination.
Bharara said at a Feb. 1 news conference announcing the case that his office didn’t consider Serageldin a fugitive.
“We encourage him and his lawyer to come to the U.S. and answer the charges against him,” Bharara said.
If Serageldin doesn’t come to New York, Bharara said the U.S. will seek to extradite him. Ellen Davis, a spokeswoman for Bharara, declined to comment on McGuire’s statement about Serageldin’s cooperation with the U.S. attorney’s office.
Switzerland’s second-largest bank said in 2008 it would take writedowns on asset-backed securities after finding “mismarkings” by a group of traders. The Zurich-based bank said it would write down $2.65 billion after a review found pricing errors on residential mortgage-backed bonds and CDOs made “by a small number” of traders who were subsequently fired or suspended.
Approximately $540 million of this write-down was attributable to Serageldin’s trading book, which he oversaw, the U.S. said. His subordinates said he directed them to artificially increase the price of bonds in order to create the appearance of profitability in the book, according to the government.
Higgs and Salmaan Siddiqui said they manipulated the profit and loss targets at Serageldin’s direction to meet daily and monthly goals and increase their compensation. The bank said that the three were fired in 2008.
The cases are U.S. v. Higgs, 12-cr-00088, and U.S. v. Siddiqui, 12-cr-00089, U.S. District Court, Southern District of New York (Manhattan). The SEC case is U.S. Securities and Exchange Commission v. Serageldin, 12-cv-00796, U.S. District Court, Southern District of New York (Manhattan).