Brendan Mcdermid/ReutersProsecutors say the fraud netted Kareem Serageldin a cash bonus of more than $1.7 million and a stock award of more than $5.2 million.
A former senior trader at Credit Suisse Group pleaded guilty on Friday to charges that he fraudulently inflated the value of mortgage bonds as the housing market collapsed, becoming one of the highest-ranking Wall Street executives to admit to crimes related to the 2008 financial crisis.
Kareem Serageldin, the former Credit Suisse trader, admitted to mismarking their positions to avoid losses in their investment portfolio at the end of 2007. He appeared in Federal District Court in Manhattan a week after being extradited from Britain.
During the court hearing, Mr. Serageldin, 39, said that after discovering that members of his team were fudging the value of its bond portfolio, he made the fateful decision to participate in the fraud rather than put an end to it.
“Why did you do that?” asked Judge Alvin K. Hellerstein.
“To preserve my reputation in the bank at a time when there was great financial turmoil,” he said.
Judge Hellerstein asked Mr. Serageldin numerous questions about his misconduct, at one point suggesting that the bank turned a blind eye to the scheme.
A Credit Suisse spokesman, Jack Grone, referred to an earlier statement from securities regulators commending the bank for immediately reporting the wrongdoing and cooperating with the investigation. Sean P. Casey, a lawyer for Mr. Serageldin at Kobre Kim, declined to comment.
Federal prosecutors first charged Mr. Serageldin, an American citizen living in London, in February 2012, and urged him to return to the United States to face the charges against him. Two of Mr. Serageldin’s underlings, David Higgs and Salmaan Siddiqui, pleaded guilty to participating in the conspiracy and cooperated with the government.
The assets overvalued by the three former Credit Suisse traders were mortgage-backed securities, the complex bonds that caused hundreds of billions of dollars in losses across the banking system and brought global markets to its knees.
The traders inflated the value of the bonds to increase their 2007 year-end bonuses, prosecutors said. Mr. Serageldin secured a cash bonus of more than $1.7 million and a stock award of more than $5.2 million.
“While the real estate market was imploding and the financial crisis emerging, Kareem Serageldin and his co-conspirators concealed significant subprime mortgage-related losses in order to secure multimillion-dollar paydays,” Preet Bharara, the United States attorney in Manhattan, said.
Mr. Serageldin, the former global head of structured credit in Credit Suisse’s investment banking division, pleaded guilty to a single count of conspiracy to falsify books and records. The charge carries a maximum sentence of five years. His sentencing is set for Aug. 2.
Credit Suisse rescinded Mr. Serageldin’s stock award after uncovering the fraud. He agreed to forfeit about $1 million — the approximate after-tax amount of his cash bonus.
The government’s investigation originated in early 2008 when the bank disclosed that it was taking a $2.65 billion write-down after discovering Mr. Serageldin’s team had misstated the value of mortgage securities on their books. Credit Suisse suspended the team and reported them to the authorities.
Article source: http://dealbook.nytimes.com/2013/04/12/ex-credit-suisse-executive-pleads-guilty-to-inflating-value-of-mortgage-bonds/?partner=rss&emc=rss
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