June 24, 2014 / 8:01 PM / in 4 years

Ex-Credit Suisse trader spared prison for faking mortgage prices

NEW YORK, June 24 (Reuters) - A former London-based Credit Suisse Group AG trader was spared prison on Tuesday over his role in artificially inflating subprime mortgage bond prices, in one of the few U.S. criminal prosecutions stemming from the financial crisis.

The former trader, David Higgs, who pleaded guilty in 2012 to a conspiracy charge, was ordered to forfeit $900,000 to the government and pay a $50,000 fine by U.S. District Judge Alison Nathan in New York.

According to the office of Manhattan U.S. Attorney Preet Bharara, Higgs provided “extremely substantial assistance” after agreeing to cooperate with prosecutors.

Another Credit Suisse trader, Salmaan Siddiqui, also pleaded guilty in 2012 and is scheduled to be sentenced this month.

Higgs’s former boss Kareem Serageldin, once Credit Suisse’s global head of structured credit, entered his own guilty plea in April 2013 and was sentenced in November to 2-1/2 years in prison.

Prosecutors said that Higgs’s cooperation helped build a case against Serageldin and may have encouraged Siddiqui to plead guilty.

They also credited Higgs, a UK citizen, for his “extraordinary decision” to voluntarily meet with U.S. authorities, waive extradition and travel to the United States to plead guilty.

Prosecutors accused the three men of mismarking the values of subprime mortgage-backed bonds between August 2007 and February 2008, as housing and credit markets were in decline.

They said the effort was intended to bolster Serageldin’s reputation at the bank by portraying the trading book he oversaw as profitable.

The price manipulation contributed to a $2.65 billion writedown, though prosecutors said at Serageldin’s sentencing that his book was overstated by $100 million.

Credit Suisse was not charged and cooperated with investigators.

The case is similar to the prosecution of two former JPMorgan Chase & Co traders, Javier Martin-Artajo and Julien Grout, linked to a $6.2 billion trading loss centered on their former colleague Bruno Iksil, nicknamed the “London Whale.”

Prosecutors have said Martin-Artajo and Grout conspired to mark positions in a credit derivatives portfolio at inflated prices to hide hundreds of millions of dollars in losses.

Both men were indicted last September on charges including securities fraud, wire fraud and conspiracy. They are considered fugitives for refusing to face trial in the United States.

In April, a lawyer for Grout said he was discussing a bail package with prosecutors that would enable his client, a French citizen, to come to the United States. Martin-Artajo, who lives in Spain, has been fighting extradition.

The case is U.S. v. Higgs, U.S. District Court, Southern District of New York, No. 12-cr-00088. (Reporting by Joseph Ax; Editing by Leslie Adler)

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