Federal prosecutors plan to file criminal actions against four former traders who allegedly overvalued collateralized debt obligations (CDOs) sold by Credit Suisse in order to increase their commissions. The events occurred in 2008 and resulted in a $2.85 billion write down by Credit Suisse. Credit Suisse fired the traders and cooperated with authorities in their investigation. (“Ex-Traders at Credit Suisse Expected to Be Charged With Fraud,” New York Times, Dealbook).
One of the former traders, David Higgs, surrendered to the FBI on Wednesday, according to the Wall Street Journal (“Former Credit Suisse Employee Surrenders to FBI in Bond Probe”). Prosecutors will allege that the traders’ overvaluations misled investors. The SEC will reportedly file related civil changes. Neither Credit Suisse nor any of its senior executives are expected to be charged civilly or criminally.
Toxic CDOs and other mortgage-backed securities played a significant role in the 2008-2009 financial crisis, yet not one person has been convicted of committing a crime in connection with the financial crisis. The Obama Justice Department has been widely criticized for failing to criminally prosecute any of the people whose actions contributed to the financial meltdown. Critics are especially disturbed that no senior executives of any Wall Street firms have been prosecuted, despite evidence that a number of such firms sold CDOs that they (or favored clients) “built to fail” and then shorted for huge gains while investors lost their shirts.
In his recent State of the Union address, President Obama said his administration would hold accountable those who broke the law. Prosecutors and regulators have reportedly stepped up their investigations into the mortgage-backed securities debacle.
Page Perry is an Atlanta-based law firm with over 170 years of collective experience maintaining integrity in the investment markets and protecting investor rights.