Credit Suisse Group AG agreed to pay $196.5 million and admit wrongdoing to settle U.S. Securities and Exchange Commission charges that it provided cross-border brokerage and investment advisory services to U.S. clients without first registering with the regulator.
The admission of wrongdoing was the fifth since last June, when SEC Chair Mary Jo White modified the regulator's decades-old practice of letting defendants settle cases without admitting or denying wrongdoing. The SEC now requires admissions in a broader array of cases.
"Broker-dealer and investment adviser registration provisions are core protections for investors," Andrew Ceresney, director of the SEC enforcement division, said in a statement on Friday. "As Credit Suisse admitted as part of the settlement, its employees for many years failed to comply with these requirements, and the firm took far too long to achieve compliance."
In settling SEC civil administrative proceedings, Credit Suisse agreed to pay $82.2 million representing income from its cross-border business, $64.3 million of interest and a $50 million fine.
The Zurich-based bank also agreed to hire an independent consultant to review its broker-dealer and investment adviser activities, and agreed to a censure.
Credit Suisse said it was pleased to settle, and is working to resolve a separate U.S. Department of Justice probe into tax-related matters. It said it set aside money for the SEC settlement in the fourth quarter of 2013.
Improper Oversight
According to the SEC, from 2002 to 2008 Credit Suisse's cross-border advisory and brokerage services operations amassed as many as 8,500 U.S. client accounts that held securities, and had an average of $5.6 billion of securities assets under management.
The SEC said that over the period in question, relationship managers made about 107 trips to the United States, providing services to hundreds of clients they visited.
It said Credit Suisse was throughout this period aware of the registration requirements and took steps to prevent violations, but that its efforts failed largely because its initiatives were not properly implemented or monitored.
In one example, the SEC said three internal audits of a Swiss-based desk that serviced U.S. clients turned up "no issues" or "minor issues," even though travel reports reflected visits with prospective U.S. clients and the potential receipt of millions of dollars of new money from them.
Credit Suisse began shutting the business down in late 2008, soon after Swiss bank UBS AG said it would shut down a cross-border business for U.S. clients in the wake of much-publicized criminal and civil tax investigations.
UBS agreed in February 2009 to settle those probes by paying $780 million in fines, other penalties, interest and restitution and entering a deferred prosecution agreement.
Seeking Accountability
White has said the SEC would consider requiring admissions of wrongdoing where there has been particularly egregious conduct, an undermining of investigative processes, harm to many investors, or significant risks to markets or investors. She said the SEC might also consider requiring an admission in order to send an important message to markets.
"Admissions are important because they achieve a greater measure of public accountability, which, in turn, can bolster the public's confidence in the strength and credibility of law enforcement, and the safety of our markets," she said in a speech on Friday to the Practising Law Institute.
The 2nd U.S. Circuit Court of Appeals heard arguments last February but has yet to rule on whether U.S. District Judge Jed Rakoff was correct to reject the SEC's $285 million fraud settlement with Citigroup Inc because it did not require the bank to address the issue of whether it did anything wrong.
By the middle of 2013, Credit Suisse's securities assets under management across U.S. client accounts had fallen to about $34 million, the SEC said.
The bank also operates an SEC-registered brokerage business in the United States for wealthy investors, Credit Suisse Securities (USA).
The case is In re: Credit Suisse Group AG, SEC Administrative Proceeding No. 3-15763.
