The Benefits of Cooperation

by Dorsey & Whitney LLP

Enforcement officials frequently emphasize the benefits of cooperation. The cases involving former Credit Suisse Managing Director David Higgs illustrate the point. U. S. v. Higgs, 1:12-cr-00088 (S.D.N.Y. Plea February 1, 2012); SEC v. Kareem Serageldin, Civil Action 12 CIV 0796 (S.D.N.Y. Settled January 21, 2014).

The information in the criminal case alleged a scheme involving four former bank traders: Kareem Seregeldin, Global Head of Structured Credit Trading at Credit Suisse; David Higgs, Managing Director and Head of Hedge Trading who reported to Mr. Serageldin; Faisal Siddiqui, vice president in the CDO Trading Group in New York who reported to Mr. Higgs; and Salmaan Siddiqui, vice president in CDO Trading Group in New York who also reported to Mr. Higgs.

In late 2007 and 2008 the section in which the defendants worked specialized in structuring and trading mortgage backed securities. Mr. Higgs, working in the London office, oversaw and managed a trading book known as ABN1. That book was composed primarily of several thousand individual long and short subprime related positions. Until March 2008 the book had a net asset value of about $5.35 billion. About $3.71 billion in the book consisted of ABS cash bonds, including RMBS and CMBS positions.

The bonds held on the books of Credit Suisse had to be priced daily and marked-to-the-market to record their fair value. During the period the ABX Index served as a benchmark for certain securities backed by home loans. Credit Suisse traders were to consult the corresponding ABX indices when pricing RMBS bonds and related products.

As the market crisis unfolded in 2007 the real estate market deteriorated. This led to significant reductions in valuations of mortgage-backed securities. As the crisis continued, the prices dropped and the securities became illiquid. If the required write downs were taken, the bank would lose millions of dollars.

Beginning in late August 2007 defendants changed the way they valued the securities. Rather than tie the daily pricing to the ABX Index, they were marked to avoid the huge write downs. Mr. Serageldin directed Mr. Higgs on numerous occasions to reach specific profit and loss targets on a daily and at month end. Mr. Higgs then instructed Mr. Siddiqqui and another to mark the books to achieve the targets. This resulted in an increasing disparity between the value of the securities and the benchmarks that were supposed to be used. Indeed, the disparity became so pronounced that at one point Mr. Serageldin suggested they mark the prices down to avoid discovery. It also artificially inflated the prices in the ABN Book.

Eventually the abnormally high prices were discovered and the bank unraveled the fraud. On March 20, 2008 Credit Suisse announced that it had completed the evaluation of the prices for the securities. The bank wrote down the value by about $2.65 billion. About $540 million was in the ABN1 trading book.

In the criminal case Mr. Higgs pleaded guilty under a cooperation agreement with the U.S. Attorney’s Office to conspiracy to falsify the books and records of the bank. He was sentenced to time served with no supervised releases. He was also directed to pay forfeiture in the amount of $900,000, a $50,000 fine and a $100 special assessment.

Mr. Higgs settled with the Commission, consenting to the entry of a permanent injunction based on Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5). No disgorgement or penalties were ordered. The settlement cited Mr. Higgs’ cooperation.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dorsey & Whitney LLP | Attorney Advertising

Written by:

Dorsey & Whitney LLP

Dorsey & Whitney LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.