Credit Suisse Group fined for fraudulently deceiving investors in two bond offerings
Credit Suisse Group has agreed to pay nearly US $ 475 million to US and UK authorities for fraudulently misleading investors and violating the Foreign Corrupt Practices Act (FCPA) in a scheme involving two offers of bonds and a syndicated loan that raised funds on behalf of public enterprises. entities in Mozambique.
The penalty also includes nearly $ 100 million also payable to the Securities and Exchange Commission (SEC).
According to the SEC order, these transactions that raised more than $ 1 billion were used to perpetrate a hidden debt scheme, paying bribes to former investment bankers of the Credit Switzerland now indicted as well as their intermediaries, and bribe corrupt officials of the Mozambican government.
The SEC order finds that the offering documents created and distributed to investors by Credit Suisse masked underlying corruption and falsely disclosed that the proceeds would help develop the tuna fishing industry in Mozambique.
Credit Suisse has not disclosed the full extent and nature of Mozambique’s indebtedness and the risk of default resulting from these transactions.
Credit Suisse agreed to pay restitution and interest totaling more than $ 34 million and a penalty of $ 65 million to the SEC. In coordinated resolutions, the US Department of Justice (DOJ) imposed a criminal fine of $ 247 million, with Credit Suisse paying, after crediting, $ 175 million.
The SEC order also finds that the scheme was the result of Credit Suisse’s weak internal accounting controls, which failed to properly address significant and known corruption risks.
A London-based subsidiary of Russian bank VTB separately agreed to pay more than $ 6 million to settle SEC fees related to its role in deceiving investors in a second bond offer in 2016.
According to the SEC order, the second structured offer by VTB Capital and Credit Suisse allowed investors to swap their ratings in a previous bond offering for new sovereign bonds issued directly by the government of Mozambique.
However, the SEC found that the offering documents distributed and marketed by Credit Suisse and VTB Capital did not disclose the true nature of Mozambique’s debt and the high risk of default on the bonds.
The offer documents also did not disclose Credit Suisse’s discovery that significant funds from the previous offer had been diverted from the intended use of the proceeds that were disclosed to investors.
Mozambique subsequently defaulted on funding after all of the “secret debt” was exposed.
The SEC’s order against Credit Suisse finds it violated anti-fraud provisions as well as internal accounting controls and the books and records provisions of federal securities laws.
Credit Suisse has also agreed to pay more than $ 200 million in fines in a lawsuit settled with the UK’s Financial Conduct Authority (FCA).
VTB Capital consented to an SEC order finding it violated the anti-negligence-based fraud provisions of federal securities laws. Without admitting or denying the findings, VTB Capital agreed to pay more than $ 2.4 million in restitution and interest as well as a penalty of $ 4 million.
In terms of loan financing for Mozambique, Credit Suisse Group entered into a three-year deferred prosecution agreement with the DOJ and consented to the signing of a cease-and-desist order by the SEC.
Anita Bandy, Associate Director of the Division of Enforcement at the SEC, said: “Credit Suisse has provided investors with incomplete and misleading information despite its unique position in understanding the extent of Mozambique’s growing debt and the serious risk of default. based on its previous loan agreements.
She adds: “Mass bid fraud was also a consequence of the bank’s significant deficiencies in internal accounting controls and repeated failure to respond to corruption risks. “
Responding to the fine, a spokesperson for Credit Suisse said: “The bank has already improved its governance and processes in the area of security and has also taken steps to enforce the correct use of electronic communications. . “
They add: “Credit Suisse is satisfied with the completion of the procedure relating to the bank’s arrangement for the financing of loans to Mozambique’s SOEs and can now move on the issue of compliance. “