Credit Suisse to pay $90 million for padding assets under management

Employees reclassified clients' custodied assets as managed assets to meet sales targets.
OCT 05, 2016
Credit Suisse Group AG agreed to pay a $90 million penalty to settle U.S. Securities and Exchange Commission claims that the firm misrepresented how much money it attracted to its wealth management business. To meet sales targets, employees inflated new client assets managed from the fourth quarter of 2011 to 2012, which painted a rosier picture of the bank for investors, according to a statement from the regulator Wednesday. The Zurich-based lender admitted that pressure from managers led to the securities violations. Former chief operating officer Rolf Boegli, who didn't admit or deny the findings, agreed to pay an $80,000 penalty for allegedly pushing employees to misrepresent the assets despite their concerns. “Credit Suisse conveyed to the investing community that it followed a structured process for recognizing net new assets when, in fact, the process was reverse-engineered to meet targets,” Andrew J. Ceresney, head of the SEC's enforcement division, said in a statement. (More: 'Supersized' fines put Finra on pace for record year) More than $1 billion of a private wealth clients' assets were reclassified in the fourth quarter of 2011 as being managed by the bank, which generally generates higher fees than just being custodied at the bank, according to the SEC. Another customer had more than $4 billion reclassified as managed assets in the first quarter of 2012, which constituted more than 75% of net new money reported by Credit Suisse's wealth management business that quarter. In the second quarter of 2012, nearly $2 billion of another client's custodied assets were reclassified as assets under management, representing one-third of the $5.5 billion in net new assets Credit Suisse wealth management reported. In the third quarter of 2012, Credit Suisse added $1.5 billion to its Swiss managed assets while subtracting that amount from its Americas assets to give the impression of net new inflows in Switzerland. In the fourth quarter of 2012, the firm reclassified $500 million of another client's assets under custody to assets under management, representing 17% of the new assets reported. (More: SEC uses big data to make $15-million case against UBS for improper complex products sales) “Credit Suisse, at times, took a results-driven approach that allowed targets to drive the timing and amount of [net new asset] recognition,” the SEC order states. “In certain instances, certain Credit Suisse managers pressured other Credit Suisse employees to classify certain assets as AUM despite concerns raised by others.” The SEC said Credit Suisse updated its asset classification policies, which resulted in $46.4 billion in assets under management being deemed assets under custody in the third quarter of 2015. “We cooperated with the SEC's inquiry and have undertaken appropriate internal remedial efforts,” Nicole Sharp, a spokeswoman for the bank, said in a statement. “Credit Suisse clients were not harmed.” In charging Mr. Boegli, the SEC followed through on its promise to target individuals in enforcement actions, although it did not force him to admit guilt. He no longer works for Credit Suisse. “Ralf Boegli has reached a settlement with the SEC and he looks forward to moving on,” said his attorney, Kenneth Breen, a partner at Paul Hastings.

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