Analysis: Obstacles high for more mortgage prosecutions

Thu Feb 2, 2012 9:09pm EST
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By David Henry and Lauren Tara LaCapra

NEW YORK (Reuters) - Despite the determination of President Obama to take Wall Street to court for the financial crisis, prosecutors face an uphill struggle to win more convictions like the two they scored on Wednesday against former Credit Suisse Group AG CSGN.VX mortgage traders.

David Higgs, 42, and Salmaan Siddiqui, 36, pled guilty in U.S. District Court in New York to a criminal charge of conspiracy to falsify books and records and commit wire fraud in a way that bolstered their bonuses.

The convictions marked the first successful criminal prosecutions against individuals at investment banks involved in the meltdown, and took four years to win, even without a trial.

In building the case, prosecutors enjoyed advantages that are rarely available -- and likely make this kind of success hard to replicate.

Prosecutors drew on a trove of emails and taped telephone recordings from the traders that helped establish criminal intent. They also had price history on their side. The Credit Suisse traders placed unusually high values, or "marks," on their portfolio of bonds months after Citigroup (C.N: Quote) and Merrill Lynch each reported multi-billion-dollar losses on their portfolios of similar mortgage securities.

Credit Suisse in February of 2008 took a $2.85 billion write-down to adjust the value of these securities, known as collateralized debt obligations, on its books.

Prosecutors "got two people to plead guilty, so that suggests this is the lower-hanging fruit" of potential cases, said Robert Anello, a partner at Morvillo Abramowitz, a prominent white-collar defense firm in New York.

John Hueston, a lead prosecutor in the Enron trials who is now a white-collar defense lawyer, said that alleged improprieties in other financial-crisis cases will be much more difficult to dissect and prove.   Continued...

<p>Former Credit Suisse employee David Higgs walks away after appearing in United States Court in the Manhattan borough of New York, February 1, 2012. Several former Credit Suisse traders manipulated the books on mortgage-backed securities when the U.S. real estate market slumped in 2007 and 2008, two of the former traders at the investment bank said in court. REUTERS/Brendan McDermid</p>