SEC’s “re-markable” action against Credit Suisse traders
By Thomson Reuters Accelus – Staff
NEW YORK, Feb.10 (Business Law Currents) - A new SEC complaint against former Credit Suisse (CS) employees shines a harsh light on an underappreciated aspect of the financial crisis: mark-to-market manipulation. Charging four traders and investment bankers with violating securities laws, the commission’s civil action (“the complaint”) alleges a “colossal fraud” to misstate the value of bonds held in the bank’s portfolio. U.S. Attorney Preet Bharara of the Southern District of New York also filed a criminal indictment against CS investment banker David Higgs, a managing director of the bank’s London office. Bharara likewise filed a criminal information against CS trader Salmaan Siddiqui, who held the title of vice president.
Unlike more high-profile litigation revolving around the residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDOs), this particular case is noteworthy in that it attacks the accounting behind publicly filed documents, rather than allegations of material misrepresentations in the sales of securities. (more…)
BREAKINGVIEWS-Sarkozy’s anti-market rhetoric misconceived
– The author is a Reuters Breakingviews columnist. The opinions expressed are his own –
By Hugo Dixon
DAVOS, Switzerland, Jan 28 (Reuters Breakingviews) – Nicolas Sarkozy’s anti-market rhetoric is misconceived. The French president used his address in Davos to blast the untrammelled free market. While the economic crisis has certainly exposed deficiencies in financial capitalism, this is largely because market forces were too weak rather than too strong.
Sarko had some easy targets. Top of the list were bankers. Their “heads-I-win, tails-you-lose” pay practices are an outrage. But these are not the result of the free market operating properly. They are the result of governments and central banks rushing in and bailing the industry out when it runs into trouble.
Sadly the authorities won’t be able to remove their safety nets totally. So part of the solution has to be tougher regulation. But, wherever possible, the discipline of the market should also be strengthened. This means making equity investors, creditors and the bankers themselves suffer before taxpayers are called in — and, indeed, constructing a financial system where banks can fail without causing the whole pack of cards to fold.
Another Sarko bugbear is mark-to-market accounting, the theory being that wild swings in asset prices exacerbated the crisis. But a bigger problem was the failure of banks to recognise losses in their loan books soon enough. If they’d had to account for expected losses during the boom times rather than keeping their loans at face value, they would not have gone so crazy in extending credit.
Of course, banks’ trading books are treated differently from loans for accounting purposes — being largely marked to market. But even here Sarko’s criticism is off target. The problem was not strictly that the value of toxic securities dropped like a stone but rather that such illiquid assets were funded with short-term money.
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