Four Credit Suisse bankers charged in subprime bond fraud

The SEC (Securities and Exchange Commission) has brought charges against four Credit Suisse subprime-bond bankers with fraud, as they overstated the worth of $3 billion in subprime bonds sold by Credit Suisse.

According to the documents submitted by the regulator, Kareem Serageldin – former global head of structure credit trading – used fraudulent practices to outperform its rivals in order to gain admission to a senior position at Credit Suisse.

The ex-head of hedge trading did not act alone: his work was covered by two mortgage bond traders, who ignored specific market information (which pointed to a sharp decline in the price of subprime bonds) and instead priced them in a way to bring fictional profits to the Swiss banking giant.

Serageldin and David Higgs (former head of hedge trading) directed the traders to cover losses in the trading books, just to earn huge bonuses on the fictional outperformand of the subprime bonds.

In other words, this is how the financial crisis was built, and still no banksters were held accountable. Maybe the SEC filing will bring more fraudulent activities into the spotlight and more heads will fall.

“At precisely the moment investors and market participants were urgently seeking accurate information about financial institutions’ exposure to the subprime market, the senior bankers falsely and selfishly inflated the value of more than $3 billion in asset-backed securities in order to protect their bonuses and, in one case, protect a highly coveted promotion,” Robert Khuzami, director of enforcement at theSEC said.

What the SEC filing point to is how the fraud took place: Serageldin frequently communicated to Higgs the specific profit and loss outcome he wanted, while Higgs in turn directed the traders to mark the book in to achieve the desired result.

And this is just one out of the thousands of players of this national mortgage scam. Stay tuned, we’ll keep you posted.