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