Ex-Credit Suisse Trader Spared Prison Term for CDO Fraud

A former Credit Suisse Group AG trader who falsified prices tied to collateralized debt obligations to boost year-end bonuses avoided time in prison after cooperating with the U.S.

Salmaan Siddiqui’s assistance to government investigators starting two years before his guilty plea was cited today by U.S. District Judge Paul Crotty in Manhattan, who sentenced him to the few hours he spent in federal custody after his arrest.

Switzerland’s second-largest bank said in 2008 it would take writedowns on asset-backed securities after finding “mismarkings” by a group of traders. In 2012 the 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.

Siddiqui’s superiors, Kareem Serageldin and David Higgs, were eventually charged and pleaded guilty to the scheme.

“It’s with deep regret and shame that I stand here before you and I take full responsibility for my actions,” Siddiqui, 39, told Crotty today before the sentence was imposed. “At the end of 2007, I allowed myself to engage in conduct which violated the law.”

Wire Fraud

Siddiqui pleaded guilty in 2012 to one count of conspiracy to falsify books and records and commit wire fraud. While he could have faced between 1 1/2 to two years in prison under federal sentencing guidelines, which aren’t binding, federal court officials had recommended a term of probation, his lawyer Ira Sorkin said.

Sorkin told Crotty his client immediately agreed to help the U.S. in 2010, saying he’d even at one point sat down with the Federal Bureau of Investigation, the Manhattan U.S. Attorney’s office and the U.S. Securities and Exchange Commission to explain how the fraud scheme worked.

Crotty agreed Siddiqui’s help was significant.

“He was a very valuable witness from the start, giving full and complete cooperation which resulted in the conviction of his superiors, including Mr. Serageldin,” the judge said.

Trading Book

Rather than mark the securities down to market as he was required to do, Siddiqui said in his plea, his superiors directed him and other traders at Credit Suisse to manipulate and inflate the cash bond positions markings of a trading book referred to as “ABN1” in order to hide losses.

Crotty also ordered Siddiqui to forfeit $150,000, a portion of the money he earned in 2007 while the fraud was under way.

“We respect Judge Crotty’s decision,” Nicole De Bello, another lawyer for Siddiqui, said after court. “He took into consideration all of our client’s contributions and cooperation aiding the U.S. in the investigation.”

Higgs, who also pleaded guilty and cooperated with the U.S. avoided prison for his aid while Serageldin was sentenced to 2 1/2 years in prison.

The case is U.S. v. Serageldin, 12-cr-00090, U.S. District Court, Southern District of New York (Manhattan).

Before it's here, it's on the Bloomberg Terminal.