Group Presentation: Probe Nets Arrest of A Former Top Banker Business Ethics: Acct 430/530
Kareem Serageldin was a top investment banker at Credit Suisse Group. Credit Suisse is a Swiss bank providing private and investment banking and asset management. During the U.S. financial panic of 2007, Serageldin and three others at Credit Suisse allegedly began manipulating the value of securities backed by mortgages in a trading book. The bonds that were marked up consisted of AAA-rated and non-rated AAA-rated bonds, monoline bonds, and collateralized debt obligations. This was discovered after an internal review and termination of the three men. Credit Suisse cooperated in a probe by the Federal Bureau of Investigation and U.S. Prosecutors (Bray & Eaglesham, 2012). David Higgs, Faisal Siddiqui, and Salmaan Siddiqui reported to Kareem Serageldin, the Global Head of Structured Credit Trading. Salmaan Siddiqui and David Higgs, the two other former traders, pleaded guilty to conspiracy charges in February. Faisal Siddiqui was charged by the SEC but didn’t receive any criminal charges. Credit Suisse Group was not charged with any allegations in this case. Serageldin, who was located in London, was warned in February 2012 to return to the US to face criminal conspiracy, filing false books and record and wire fraud charges. On Wednesday, September 26, 2012, U.K. authorities arrested Serageldin to appear in court to begin extradition hearings. Allegations
The allegations presented by the U.S. Government were that the investment bankers and traders fraud scheme overstated the prices of over $3 billion of subprime bonds owned by Credit Suisse Group. The scheme was initiated by Serageldin when bond values began declining in 2007. Prior to August 2007, the fair value of the bonds was recorded daily by an automated pricing service called Financial Times Interactive Data (FTID). Recording the decrease in actual value would cause hundreds of millions dollars of losses for the company, threaten the employees’ multi-million dollar year-end bonuses and jeopardize Serageldin’s sought-after promotion (Calamari, 2012). At the end of the year they knew the bonds were falsely overpriced compared to the declining housing market but didn’t accurately account for them to avoid suffering the vast losses. In 2008 a recorded phone call proves that they knowingly overvalued the bonds and the year-end P&L was approved anyhow without changes. Again, at the end of January 2008 they increased the previous year-end numbers to have another favorable P&L. Finally when Credit Suisse reported its net income for the 2007 fourth quarter, management questioned the abnormally high prices recorded on bonds controlled by Serageldin. By February 2008 Credit Suisse announced their earnings were not correct and was in process of correcting the errors. By March Credit Suisse had reduced the actual fair value by $2.65 billion. These allegations against Kareem Serageldin signifies the highest level Wall Street executive to be charged criminally in a case relating to the 2008 financial meltdown (Bray & Eaglesham, 2012). Ethical Issues
Serageldin is responsible for the charge of conspiracy, falsifying books and records, and wire fraud within the U.S. The key unethical motivation in this case was greed. Prosecutors described this fraud as “a tale of greed run amok” in which Credit Suisse had a $2.65 billion write-down (Former Credit Suisse trader Serageldin arrested in Britain, 2012). Serageldin was looking after his personal interest and desire to collect the $7 million dollar year-end bonus. However, when the company discovered the overvalued bonds they withheld over $5 million of his pay. Serageldin’s moral character falls into Kohlberg’s Stage 2, acting in accordance with rules only to satisfy one’s own needs (Mintz & Morris, 2011). He even continued to increase the bonds value when the housing market was declining at an unbelievable...
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