A former Credit Suisse Group AG managing director for investment banking who had pleaded guilty to lying about the value of mortgage-backed bonds in 2007 avoided time in prison after cooperating with prosecutors.
David Higgs, a 44-year-old U.K. citizen, waived extradition and voluntarily crossed the Atlantic several times to aid government lawyers, U.S. District Judge Alison Nathan said in Manhattan today. She sentenced Higgs to the time he had already served which, according to his lawyer John Brownlee, was the few hours after he turned himself in.
Higgs “did it for greed” and his actions helped create public panic when the housing bubble burst, but his cooperation with prosecutors was “early, full and honest,” Nathan said. The level of praise he received from the government in the sentencing process was “rare,” she said.
The sentencing comes as U.S. agencies probe banks that bundled faulty mortgages and sold them to investors as top-rated securities. The investigations have led to tens of billions of dollars in settlements and fines. Pools of home loans securitized into bonds were central to the housing bubble that helped send the U.S. into the worst recession since the 1930s.
After the Credit Suisse plot was discovered, the Zurich-based company conducted an internal review and took a $2.65 billion writedown, the U.S. said. About $540 million of the writedown was due to the book of securities overseen by Higgs’s team, according to the government.
Higgs in February 2012 pleaded guilty to falsifying prices tied to collateralized debt obligations to meet targets and boost year-end bonuses. He and another trader, Salmaan Siddiqui, admitted engaging in the scheme at the direction of their supervisor, Kareem Serageldin, then the global head of Credit Suisse’s structured credit-trading unit. All three men were fired in 2008, the bank has said.
Today, Nathan said the scheme wouldn’t have happened if it hadn’t been for Serageldin, and that Higgs’s involvement was “clearly less than that of his boss.”
She also said she took into account a blood disorder Higgs has and for which he requires chemotherapy. The judge fined Higgs $50,000 and said she would sign a $900,000 forfeiture order. Brownlee said the penalties amount to more than his client earned as a result of the scheme.
Serageldin pleaded guilty in April 2013 and was sentenced in November to 2 1/2 years for his part in the fraud. He was also ordered to pay a $150,000 fine and perform community service for two years after he’s released from prison.
“The government has concluded that without David’s assistance, the case against Mr. Serageldin would have never been brought and the mastermind of a serious fraud scheme would have certainly escaped punishment,” Higgs’s lawyer, Aaron Goldberg, wrote in a sentencing brief.
The U.S. said Serageldin and traders he supervised “cheated” by deliberately causing the trading book to be marked in such a way as to hide the true extent of losses.
Serageldin said during his guilty plea that when he discovered subordinates falsifying the value of mortgage-backed bonds in late 2007, he joined the scheme rather than stopping it. He said he sought to preserve his reputation in the bank at a time of turmoil in the market.
The case is U.S. v. Higgs, 1:12-cr-00088, U.S. District Court, Southern District of New York (Manhattan).