By Nate Raymond
NEW YORK Nov 22 A former Credit Suisse Group AG trader was sentenced to 30 months in prison on Friday for his role in a scheme to artificially inflate subprime mortgage bond prices.
Kareem Serageldin, the bank's former global head of structured credit, pleaded guilty in federal court in New York in April to conspiracy to falsify books and records. [ID: nL2N0CZ17Z]
The sentence was shorter than the up to five years in prison requested by prosecutors. U.S. District Judge Alvin Hellerstein in Manhattan also ordered Serageldin to pay a fine of $150,000 on top of more than $1 million he agreed to forfeit.
The judge acknowledged that Serageldin had already faced five years of investigations and prosecution, "its own form of punishment."
Serageldin's lawyers had asked for no jail time, noting that he had surrendered $25.6 million in deferred compensation to Credit Suisse, about $20 million of which he earned before the years at issue.
The lawyers also pointed out that Serageldin also agreed to settle a civil lawsuit brought by the Securities and Exchange Commission. As part of that settlement, his lawyers said, Serageldin would be "effectively banned" from the securities industry.
But Hellerstein said a sentence was required to teach others in similar situations a lesson. "You failed in doing what was right, and for this I have to punish you," he said.
Prosecutors accused Serageldin, 40, of conspiring with Credit Suisse employees working for him to mis-mark the values of subprime mortgage-backed bonds between August 2007 and February 2008, when housing and credit conditions were worsening.
The goal, prosecutors said, was to paint a false picture that the trading book Serageldin oversaw was profitable. In total, the price manipulation contributed to a $2.65 billion writedown by Credit Suisse, prosecutors said.
However, Assistant U.S. Attorney Eugene Ingoglia said, when questioned by Hellerstein, that the mismarking at issue contributed to just $100 million of those losses. The judge said it was a sign of a "terrible climate" at the bank at the time.
"Mr. Serageldin's crime - and it was a crime - was one duplicated by many others and in many other departments," Hellerstein said.
Drew Benson, a spokesman for Credit Suisse, for the most part declined comment. In 2012, the SEC decided against charging the bank itself for among other reasons its self-reporting of the incident and cooperation in the investigation.
Two of Serageldin's former colleagues, David Higgs and Salmaan Siddiqui, each pleaded guilty to a conspiracy charge in 2012 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 for marking positions in a credit derivatives portfolio at inflated prices to hide hundreds of millions of dollars of losses.
"Your honor, I am sorry for what I have done," Serageldin said. "My terrible mistake will live with me for the rest of my life."
At his plea hearing in April, Serageldin said he discovered that a portfolio of securities he oversaw was marked higher than it could have been sold for in late 2007 but decided to perpetuate the inflated pricing as a way of preserving his reputation within the bank during a time of turmoil.
Serageldin, who was born in Cairo, Egypt, and spent much of his childhood in Michigan, joined the bank in 1994, relocating to London four years later. By 2007, he was supervising 70 employees and more than $50 billion in trading positions, his lawyers said.
The case is U.S. v. Serageldin, U.S. District Court, Southern District of New York, No. 12-00090.