Federal prosecutors in Manhattan said Kareem Serageldin, the financial company's former managing director and global head of structured credit, was slated to receive nearly $7 million in compensation in 2007 before the company learned about the fraud and withheld $5.2 million of his pay. The fraud was blamed as part of the reason the company was forced to take a $2.65 billion write-down of its 2007 year-end financial results. "It is a tale of greed run amok," U.S. Attorney Preet Bharara said. "They papered over more than a half billion dollars in subprime mortgage-related losses to secure for themselves a big payday at the same time that many people were losing their homes and their jobs."
Serageldin, 38, a U.S. citizen living in England, wasn't in custody and there were no immediate plans to seek his extradition on charges of conspiracy, falsifying books and records, and wire fraud, all of which carry a potential penalty of 45 years in prison, Bharara said. "I would encourage him to come to the United States and answer the charges against him," the prosecutor said. Meanwhile, David Higgs, 42, a former London-based managing director and a citizen of the United Kingdom, and Salmaan Siddiqui, 31, of McLean, Va., a former trader with the investment firm in Manhattan, seemed eager to identify others as they entered their pleas in U.S. District Court in Manhattan to conspiracy charges.
The criminal prosecution was one of the first to target those who sold complex investments called collateralized debt obligations that were based on the valuations of mortgages. The securities — baskets of mortgage bonds — have been blamed by some for contributing to the housing bubble and its spectacular collapse. The probe — which focuses on activities in 2007 and 2008 — centers on exaggerations that brokers made about the value of subprime mortgage securities. Authorities say brokers enticed investors to pour money into the securities market for subprime mortgages by making the market sound healthy.
The ensuing subprime mortgage crisis fueled the financial meltdown in the fall of 2008 that pushed the U.S. into the most severe recession since the Great Depression of the 1930s. After their pleas, Higgs and Siddiqui were freed on $500,000 bail. Higgs was permitted to cooperate from his home in England; Siddiqui can travel the country.