UPDATE 3-Ex-Credit Suisse trader pleads guilty in US mortgage case

Fri Apr 12, 2013 6:37pm EDT

* Case involves pricing of subprime mortgage bonds

* Serageldin in plea deal with Manhattan federal prosecutors

* Prosecutor says defendant faces up to 5 years in prison

By Bernard Vaughan

NEW YORK, April 12 (Reuters) - A former Credit Suisse Group AG trader pleaded guilty to a conspiracy charge on Friday in a U.S. criminal case relating to the alleged inflation of subprime mortgage bond prices.

Kareem Serageldin, the Swiss bank's former global head of structured credit, pleaded guilty to conspiracy to falsify books and records at a hearing in Manhattan federal court. He faces up to five years in prison, according to the U.S. Justice Department.

"I made a terrible mistake and I deeply regret my conduct," Serageldin, 39, told U.S. District Judge Alvin Hellerstein.

Prosecutors had accused the British citizen of artificially boosting the prices of subprime mortgage-backed bonds between August 2007 and February 2008, when housing and credit conditions were rapidly deteriorating.

Overall, the price manipulation by Serageldin and others contributed to Credit Suisse's taking a $2.65 billion writedown in its 2007 year-end results, according to prosecutors. Credit Suisse has not been accused of wrongdoing.

In a statement, Serageldin portrayed a period of intense pressure as the housing crisis spooked financial markets in 2007 and 2008. In late 2007, Serageldin said he discovered that a portfolio of securities he oversaw was marked much higher than it could have been sold at the time.

He said he joined the scheme to protect his reputation within the bank as other groups were losing money.

"There was a lot of market turmoil with the bank," he said.

Two of his former Credit Suisse colleagues, David Higgs and Salmaan Siddiqui, have already pleaded guilty. Higgs was a managing director and Siddiqui a vice president in the Swiss bank's investment banking division, according to prosecutors.

Eugene Ingoglia, a prosecutor at the Manhattan U.S. Attorney's Office, said at the hearing that evidence in the case includes recorded telephone calls between New York and London, emails and interviews with cooperating witnesses.

Hellerstein peppered Serageldin with questions about whether his superiors may have known of the manipulation, at one point asking if management might have "closed their eyes to it."

Serageldin said it was "certainly possible" for management to have noticed, but he did not elaborate.

Bank spokesman Drew Benson declined to comment on the case. But he referred to a 2012 statement from the U.S. Securities and Exchange Commission in which it said it did not charge Credit Suisse for several reasons, including the "isolated nature of the wrongdoing and Credit Suisse's immediate self-reporting to the SEC and other law enforcement agencies."

Credit Suisse awarded Serageldin a bonus of $7 million in cash and stock in 2007, before it discovered the scheme, according to the Manhattan U.S. Attorney's Office. The bank later rescinded the bonus.

Serageldin said that, under the plea agreement, he has agreed to forfeit about $1 million, which represents the after-tax cash portion of his 2007 bonus.

Under the agreement, the government dropped a charge of wire fraud and a charge of false books and records.

Serageldin was arrested in London last September and extradited to the United States earlier this year to face charges.

The case is U.S.A. v. Serageldin, U.S. District Court, Southern District of New York, No. 12-00090

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