Credit Suisse to pay $475 million to settle fraud charges related to Mozambique loan

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Credits: Credit Suisse/Flickr

Credit Suisse Group AG (NYSE: CS) agreed to pay $475 million to settle fraud charges in connection with the financing of a multimillion-dollar loan for a state-owned tuna fishing project in Mozambique.

Authorities in the United States and the United Kingdom filed civil and criminal complaints against the Switzerland-based global financial institution for defrauding investors.

According to the U.S. Department of Justice (DOJ), the $475 million will be paid to authorities in the UK and the United States as well as restitution to investors. The court will determine the amount of restitution based on the agreed methodology to calculate the proximate loss for victims of Credit Suisse’s fraudulent conduct.

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Credit Suisse pleads guilty to defrauding investors

Credit Suisse admitted defrauding investors in the securities of Empresa Moçambicana de Atum S.A. (EMATUM), the state-owned entity responsible for developing the tuna fishing project, according to the DOJ.

The global financial institution through its subsidiary in the United Kingdom, Credit Suisse Securities (Europe) Limited (CSSEL), and co-conspirators misled investors and potential investors in EMATUM.

Between 2013 and March 2017, Credit Suisse, CSSEL, and co-conspirators made material misrepresentations and omissions regarding:

  • risks associated with the use of loan proceeds
  • the payment of kickbacks to CSSEL bankers and bribes to Mozambican officials
  • the existence and maturity dates of debt owed by Mozambique

The global financial institution told investors that EMATUM will only use the loan proceeds for the tuna fishing project. However, co-conspirators diverted loan proceeds from investors to an EMATUM contractor that paid around $50 million in kickbacks to CSSEL bankers and approximately $150 million in bribes to Mozambican government officials.

Credit Suisse identified red flags including the significant corruption concerns before and during the EMATUM financing. It was also aware that EMATUM had problems servicing the loan, raising the risk of default. Additionally, the global financial institution knew that there is a substantial shortfall ($265 to $394 million) between the funds raised for the EMATUM loan and the fair market value of its boats, infrastructure, and training sold by its contractor.

Authorities in the U.S. and U.K. alleged that Credit Suisse did not disclose this material information to investors when it agreed to restructure and exchange the original EMATUM security into a bond with a longer maturity date. The price of EMATUM’s securities declined in April 2016 when Credit Suisse’s fraudulent conduct was revealed. As a result, investors suffered losses.

In a statement, U.S. Attorney Breon Peace for the Eastern District of New York said Credit Suisse and CSSEL engaged in a global criminal conspiracy to defraud investors…This coordinated global resolution demonstrates this Office’s commitment to working across borders with our global law enforcement partners to root out abuse and fraud by financial institutions in order to protect investors here in the United States.”

Credit Suisse also reached parallel settlements with the U.S. Securities and Exchange Commission (SEC) and the U.K. Financial Conduct Authority (FCA).

In a statement, SEC Division of Enforcement Gurbir Grewal said, “When it comes to cross-border securities law violations, the SEC will continue to work collaboratively with overseas law enforcement and regulatory agencies to fulfill its Enforcement mission. Our action against Credit Suisse today is yet another example of our close and successful coordination with counterparts in Europe and Asia.”

U.K. and U.S. authorities assessed more than $547 million in penalties, fines, and disgorgement against Credit Suisse as part of the coordinated global resolution.

The DOJ took into account the other resolutions entered into by the global financial institution with other authorities and credited $175 million. The department imposed a criminal penalty of $247 million. It also agreed to pay over $200 million to the U.K. FCA.

The SEC ordered Credit Suisse to pay almost $100 million in penalties, interests, and disgorgement as part of the coordinated global resolution.

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