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Ex-subprime bond trader accused of fraud faces extradition to U.S.

January 14, 2013|By E. Scott Reckard
  • Kareem Serageldin, a former subprime bond trading executive at Credit Suisse, arriving Monday at Westminster Magistrates Court in London, where he was approved for extradition to the U.S. on fraud charges.
Kareem Serageldin, a former subprime bond trading executive at Credit… (Andrew Cowie / AFP/Getty…)

As the mortgage market collapsed in 2007, bond trader Kareem Serageldin had a tricky job – placing a value on more than $3 billion in toxic mortgage securities decaying on the books of Credit Suisse, the giant Swiss bank.

On Monday, a British court approved Serageldin’s extradition to New York to face criminal charges that he inflated the bonds’ value by $540 million to impress his bosses, angling for millions of dollars in year-end bonuses and a shot at a big promotion.

Serageldin, a U.S. citizen living in London, had been granted $7.3 million in compensation for 2007 before Credit Suisse learned of the alleged scheme and withheld $5.2 million of the pay.

In a rare criminal prosecution of Wall Street stemming from the financial crisis, the former global head of structured credit for Credit Suisse was indicted last February on conspiracy and fraud charges. Two underlings pleaded guilty and have been cooperating with federal prosecutors and securities regulators.

Announcing the indictment, U.S. Atty. Preet Bharara in Manhattan characterized the case as “greed run amok, piggybacking on one of the worst economic dislocations our nation has ever experienced.”  

Quiz: How much do you know about mortgages?

A Securities and Exchange Commission complaint said Serageldin and his colleagues knew by the end of 2007 that the bond holdings were “grossly overvalued.” The bond traders were recorded discussing how “housing was going down the tubes,” the suit alleged, yet they didn't mark down the subprime mortgage bonds to reflect that reality.

A few days after Credit Suisse reported fourth-quarter earnings, senior managers detected abnormally high prices on some of the bonds. After investigation, the bank wrote down the value of various mortgage securities by $2.7 billion, including $540 million for the holdings Serageldin oversaw.

Serageldin, 39, appeared at Westminster Magistrates Court on Monday, where his extradition was ordered and the case sent to U.K. Home Secretary Theresa May for approval. Reports from London said May would approve the extradition.

Sean Casey, a New York attorney representing Serageldin, declined to comment.

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