Credit Suisse (CS) is agreeing to pay $196 million and has admitted to wrongdoing as part of its settlement with the Securities and Exchange Commission over allegations that it violated federal securities laws when it gave cross-border investment advisory and brokerage services to US clients even though it was not registered with the regulator. According to the SEC’s order to institute resolved administrative proceedings, the financial firm gave cross-border securities services to thousands of clients in this country even though it hadn’t met federal securities laws’ registration provisions. In the process, Credit Suisse made about $82 million in fees even though its relationship managers that were involved had not registered with the Commission nor did they have affiliation to any registered entities.
The firm began providing cross-border brokerage and advisory services for customers in the US in 2002, setting up as much as 8,500 accounts that held about $5.6 billion in securities assets. Relationship managers visited the US about 107 times and serviced hundreds of customers when they were here. They would offer investment advice and effect securities transactions. When they were abroad, the managers worked with US clients via phone calls and e-mails. Also, some of the customers involved were Americans who had Swiss bank accounts at the firm. Criminal authorities continue to look into whether there were tax violations and if the clients were able to avoid paying taxes as a result.
Even though the firm knew about the registration requirements and made efforts to prevent violations, their initiatives didn’t work that well due to improper monitoring and the inadequate implementation of internal controls. The SEC says that it wasn’t until the civil and criminal probe into similar conduct by UBS (UBS) in 2008 that Credit Suisse started taking action to stop providing these cross border advisory services to UC clients. These types of activities were completely terminated but not until the middle of last year. During that time, the financial firm kept collecting investment adviser fees on some broker accounts.
The SEC is accusing Credit Suisse of violating the Investment Advisers Act of 1940 and the Securities Exchange Act of 1934. When settling, Credit Suisse admitted to the facts in the SEC’s order, acknowledged that it violated federal securities law, accepted a cease-and-desist order and a censure, and agreed to hire an independent consultant. The $196 million settlement that the firm is paying includes over $82 million in disgorgement, more than $64 million in prejudgment interest, and a $50 million penalty.
That Credit Suisse admitted to wrongdoing when settling the securities charges with the SEC is significant. It is just the fifth such admission since the regulator revised its policy to allow defendants to resolve charges against them without having to deny or admit to wrongdoing. The Commission decided that in cases involving blatant violations and egregious misconduct, an admission of guilty was warranted to resolve allegations.
Credit Suisse Admits Wrongdoing in SEC Case, New York Times, February 21, 2014
Credit Suisse Agrees to Pay $196 Million and Admits Wrongdoing in Providing Unregistered Services to U.S. Clients, SEC, February 21, 2014
Read the SEC Order (PDF)
More Blog Posts:
New Jersey Files Securities Lawsuit Against Credit Suisse Over $10B in MBS Sales, Stockbroker Fraud Blog, December 20, 2013
Mixed Securities Verdict Reached in SEC Case Against Texas-Based Life Partners Holdings, Stockbroker Fraud Blog, February 19, 2014
Credit Suisse Could Settle with US Over Tax Evasion Allegations for Over $800M, Institutional Investor Securities Blog, January 18, 2014