US charges former Credit Suisse CDO head Serageldin with fraud

Reuters and Bloomberg have report that US federal prosecutors have charged Credit Suisse’s former global head of synthetic CDOs, Kareem Serageldin, with fraud. They report that two more junior traders, David Higgs and Salmaan Siddiqui, appeared in court yesterday, pleading guilty to charges of conspiracy to commit fraud.

Serageldin ran the correlation business in London, where Higgs was also based, until 2008. The three, and another US-based employee, Faisal Siddiqui, are alleged to have mismarked an ABS book which Credit Suisse referred to as ABN1. Although most synthetic CDOs were based on corporate credit risk, asset-backed securities were regularly included in these deals before the financial crisis. For this reason, the value of asset-backed securities is likely to have had a big impact on Serageldin’s book.