The Securities and Exchange Commission (“SEC”) charged four former Credit Suisse employees with violating federal securities laws while engaging in fraudulent over-pricing of subprime bonds. The investment bankers allegedly manipulated the accounting behind the pricing of the group’s investment portfolio. The scheme was originated by a UK investment banker.
The mismarking scheme was triggered by the bankers’ desire to secure large year-end commissions and a coveted promotion to high-level senior positions in Credit Suisse’s investment banking unit. The over-pricing scheme falsified the prices of over $3 billion of subprime bonds owned by Credit Suisse Group.
The complaint alleged that between August 2007 and February 2008, defendants ignored Credit Suisse’s policies, as well as, the U.S. Generally Accepted Accounting Principles (GAAP), to mark securities at fair market value. Instead, defendants arbitrarily manipulated the price of Credit Suisse’s AAA bond portfolio to a deceptive higher market value. The complaint alleged that by August 2007, as the credit markets became more distressed and less liquid, defendants had a paper loss of approximately $75 million. Faced with this loss, the bankers took it upon themselves to fraudulently manipulate the accounting to inflate the portfolio value. The SEC’s investigation focused on recordings of telephone conversations among the defendants.
The SEC did not press charges against Credit Suisse, their decision influenced by the isolated nature of the wrongdoing, and Credit Suisse’s immediate self-reporting and cooperation with the SEC and other law enforcement agencies, as well as prompt public disclosure of corrected financial results. Additionally, Credit Suisse voluntary terminated the four investment bankers and implemented enhanced internal controls to prevent a recurrence of the misconduct.