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Press Release

Former Credit Suisse Managing Director Sentenced In Manhattan Federal Court To 30 Months In Prison In Connection With Scheme To Hide Losses In Mortgage-Backed Securities Trading Book

For Immediate Release
U.S. Attorney's Office, Southern District of New York

Preet Bharara, the United States Attorney for the Southern District of New York, announced that KAREEM SERAGELDIN, the former Managing Director/Global Head of Structured Credit in the Investment Banking Division of Credit Suisse Group (“Credit Suisse”), was sentenced today to 30 months in prison in connection with a scheme to hide more than $100 million in losses in a mortgage-backed securities trading book at Credit Suisse. The bonds at issue in Credit Suisse’s trading book comprised subprime residential mortgage backed securities (“RMBS”) and commercial mortgage backed securities (“CMBS”). Once discovered, SERAGELDIN’s manipulation of these bond prices contributed to Credit Suisse taking a $2.65 billion write-down of its 2007 year-end financial results. In April 2013, SERAGELDIN was extradited from the United Kingdom and pled guilty to conspiring to falsify the books and records of the bank before U.S. District Judge Alvin K. Hellerstein. SERGAGELDIN’s co-conspirators, David Higgs and Salmaan Siddiqui, have also pled guilty and are awaiting sentencing.

Manhattan U.S. Attorney Preet Bharara said: “With today’s sentence Kareem Serageldin will now pay a steep price for the role he played in a conspiracy to cover up more than one hundred million dollars in subprime mortgage-related losses – the loss of his liberty.”

According to the Indictment filed against SERAGELDIN and the Informations to which Higgs and Siddiqui pled guilty, other court documents, and statements made during court proceedings:

SERAGELDIN was employed at Credit Suisse as a Managing Director. He held the position of Global Head of the Structured Credit Group in the Securities Department of Credit Suisse’s Investment Banking Division, and divided his time between the company’s New York and London offices. The Structured Credit Group held and traded ABS (“Asset Backed Security”) cash bonds, which included RMBS and CMBS. SERAGELDIN oversaw and

managed a number of trading books, including a trading book known as “ABN1.” The ABN1 book comprised primarily several thousand individual long and short subprime-related positions, as well as other securities. The long positions consisted of, among other things, various types of cash securities, including AAA-rated and non-AAA-rated cash bonds. Until March 2008, ABN1 had a net asset value of approximately $5.35 billion, approximately $3.71 billion of which consisted of ABS cash bonds, including RMBS and CMBS positions.

Pricing of Mortgage-Backed Securities

Credit Suisse traders were required at all relevant times to price securities they held at their fair value, that is, on a “mark-to-market” basis, which was determined by reference to either the current market price of the asset or liability, or the current price for a similar asset or liability. In the absence of a liquid market, Credit Suisse traders were required to look to other indicia in order to determine the fair value of the assets on their books. During this time, the ABX Index served as a benchmark for certain securities backed by home loans. It was widely understood within Credit Suisse that traders were to consult the corresponding ABX indices when pricing RMBS bonds and related products.

The Bond Pricing Scheme

The deterioration throughout 2007 of the real estate market in the United States, including the subprime housing market, led to significant reductions in valuations of mortgage-backed securities. As mortgage delinquencies increased across the country, the value of the securities backed by these mortgages decreased and the market for them became increasingly illiquid.

By late November 2007, SERAGELDIN was aware that the market for mortgage-backed securities had declined enormously. On November 28, 2007, SERAGELDIN told Higgs, Siddiqui, and a co-conspirator (“CC-1”) that “the housing market [was] going down the tubes” and that they had to “find a way to sell these bonds,” i.e., mortgage-backed bonds in ABN1. As SERAGELDIN recognized, “[t]hose bonds are going to start trading worse than the [ABX] Index.” SERAGELDIN and his co-conspirators did not sell the bonds because the market prices for the bonds were substantially below the inflated value at which they marked the bonds.

From August 2007 through February 2008, SERAGELDIN, Higgs, Siddiqui, and their co-conspirators artificially increased the price of bonds in order to create the false appearance of profitability in the ABN1 trading book. Specifically, SERAGELDIN directed Higgs on numerous occasions to reach specific Profit & Loss (“P&L”) targets on a daily and month-end basis. Higgs, in turn, instructed Siddiqui and another unnamed co-conspirator to mark the books so as to achieve the particular P&L targets specified by SERAGELDIN, rather than to reflect the fair value of the bonds.

Credit Suisse’s ABN1 Trading Book Was Falsely Inflated as a Result of the Scheme

As a result of the scheme, there was a growing disparity between the values ascribed to the marks in the ABN1 book and the available external benchmarks such as the ABX Index. From August 2007 through the end of that year, as ABX Index prices fell, bond prices in ABN1 that were supposed to reflect the ABX Index remained effectively stable, thereby giving the false impression to Credit Suisse senior management that the ABN1 book was profitable. On one occasion in January 2008, SERAGELDIN expressed concern to Higgs that the overpriced bonds were at risk of being discovered: “We should mark these down because someone is going to spot this,” he said.

The February 2008 Mark-Down

On March 20, 2008, Credit Suisse issued a press release that announced completion of its internal review and stated that the fair value reduction, or write-down, of the ABS positions – which included, but was not limited to, the ABNl book – was approximately $2.65 billion. Approximately $540 million of this write-down was attributable to the ABN1 trading book, and included ABS cash bonds for the fourth quarter 2007 that SERAGELDIN manipulated and inflated in connection with his scheme.

In addition to the prison term, Judge Hellerstein sentenced SERAGELDIN, 40, a citizen of the United Kingdom, to two years of supervised release. SERAGELDIN also was ordered to pay forfeiture in the amount of $1 million, a $150,000 fine, and a $100 special assessment.

Mr. Bharara praised the work of the Federal Bureau of Investigation and thanked the Securities and Exchange Commission for its assistance in the investigation of this case.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant United States Attorney Eugene Ingoglia is in charge of the prosecution. This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit

Updated April 17, 2023

Press Release Number: 13-365