By Nate Raymond
NEW YORK, Nov 22 (Reuters) - A former Credit Suisse Group AG trader was sentenced to 30 months in prison on Fridayfor his role in a scheme to artificially inflate subprimemortgage bond prices.
Kareem Serageldin, the bank's former global head ofstructured credit, pleaded guilty in federal court in New Yorkin April to conspiracy to falsify books and records. [ID:nL2N0CZ17Z]
The sentence was shorter than the up to five years in prisonrequested by prosecutors. U.S. District Judge Alvin Hellersteinin Manhattan also ordered Serageldin to pay a fine of $150,000on top of more than $1 million he agreed to forfeit.
The judge acknowledged that Serageldin had already facedfive years of investigations and prosecution, "its own form ofpunishment."
Serageldin's lawyers had asked for no jail time, noting thathe had surrendered $25.6 million in deferred compensation toCredit Suisse, about $20 million of which he earned before theyears at issue.
The lawyers also pointed out that Serageldin also agreed tosettle a civil lawsuit brought by the Securities and ExchangeCommission. As part of that settlement, his lawyers said,Serageldin would be "effectively banned" from the securitiesindustry.
But Hellerstein said a sentence was required to teach othersin similar situations a lesson. "You failed in doing what wasright, and for this I have to punish you," he said.
Prosecutors accused Serageldin, 40, of conspiring withCredit Suisse employees working for him to mis-mark the valuesof subprime mortgage-backed bonds between August 2007 andFebruary 2008, when housing and credit conditions wereworsening.
The goal, prosecutors said, was to paint a false picturethat the trading book Serageldin oversaw was profitable. Intotal, the price manipulation contributed to a $2.65 billionwritedown by Credit Suisse, prosecutors said.
However, Assistant U.S. Attorney Eugene Ingoglia said, whenquestioned by Hellerstein, that the mismarking at issuecontributed to just $100 million of those losses. The judge saidit was a sign of a "terrible climate" at the bank at the time.
"Mr. Serageldin's crime - and it was a crime - was oneduplicated by many others and in many other departments,"Hellerstein said.
Drew Benson, a spokesman for Credit Suisse, for the mostpart declined comment. In 2012, the SEC decided against chargingthe bank itself for among other reasons its self-reporting ofthe incident and cooperation in the investigation.
Two of Serageldin's former colleagues, David Higgs andSalmaan Siddiqui, each pleaded guilty to a conspiracy charge in2012 and also cooperated with the investigation.
The case bears similarities to the so-called "London Whale"prosecution of two former JPMorgan Chase & Co traders,Javier Martin-Artajo and Julien Grout, which resulted form a$6.2 billion trading loss.
The former JPMorgan traders were indicted in September formarking positions in a credit derivatives portfolio at inflatedprices to hide hundreds of millions of dollars of losses.
"Your honor, I am sorry for what I have done," Serageldinsaid. "My terrible mistake will live with me for the rest of mylife."
At his plea hearing in April, Serageldin said he discoveredthat a portfolio of securities he oversaw was marked higher thanit could have been sold for in late 2007 but decided toperpetuate the inflated pricing as a way of preserving hisreputation within the bank during a time of turmoil.
Serageldin, who was born in Cairo, Egypt, and spent much ofhis childhood in Michigan, joined the bank in 1994, relocatingto London four years later. By 2007, he was supervising 70employees and more than $50 billion in trading positions, hislawyers said.
The case is U.S. v. Serageldin, U.S. District Court,Southern District of New York, No. 12-00090.
- Crime & Justice
- Society & Culture
- Credit Suisse