NEW YORK--In a rare criminal prosecution to emerge from the financial crisis, two former Credit Suisse traders admitted on Wednesday to conspiring to manipulate the value of about $3 billion in subprime mortgage-backed securities in order to hide losses as the U.S. real estate market began to collapse in 2007.
The men, London-based David Higgs, 42, and Salmaan Siddiqui, 36, of McLean, Virginia, pleaded guilty in U.S. district court in New York to a criminal charge of conspiracy to falsify books and records and commit wire fraud.
Their one-time boss, Kareem Serageldin, 38, a U.S. citizen who lives in Britain, faces the same conspiracy charge and additional charges of falsifying books and records and wire fraud. Federal prosecutors said they do not consider Serageldin a fugitive even though he has yet to appear in the United States to answer to the charges.
There have been few prosecutions of individuals at high-profile banks for conduct that contributed to the financial crisis, but the Obama administration says it is stepping up investigations over the collapse of the subprime housing market.
Beginning in the fall of 2007, the three men and others began to manipulate the bond markets to alter Profit and Loss (P&L) numbers, according to phone calls recorded under Credit Suisse policy, the indictment of Serageldin said.
"If you want (P&L) to be a big number let me know what you want, then I'll just go through it with (Higgs) because obviously I can move things back to where they were ... if you're looking for a big number today..." one of the traders said in a Sept. 13, 2007 phone call with Seragaldin, the indictment said.
The investigation stems from $2.85 billion in writedowns that Credit Suisse took on collateralized debt obligations in 2008. Credit Suisse revealed those CDO losses in early 2008 and blamed them on a group of rogue traders who deliberately mispriced securities and on a failure of internal controls.
Credit Suisse was not charged in the case. A spokesman for the bank declined to comment on Wednesday. The company has cooperated with the government's investigations.
Separately, the U.S. Securities and Exchange Commission filed civil charges against Serageldin, Higgs, Salmaan Siddiqui and a fourth trader, Faisal Siddiqui. The Siddiquis are not related.
Serageldin's lawyer, James McGuire, said his client "believes he has done nothing wrong and nothing illegal." McGuire said that over a four-year-long investigation, Serageldin had fully cooperated with authorities in Britain and the United States, including five or six interviews. "The indictment comes as some surprise to us."
