To Settle with SEC Credit Suisse Makes Admissions, Pays $90 Million
Attracting new business is a key goal for any business. Enterprises which are successful in achieving this goal typically tout their results – nothing breeds success like success. Credit Suisse followed this model, disclosing a formula in SEC filings which measured its success in attracting new business and then marketing the results. The metrics achieved by the Swiss based international financial firm were at times, however, the product of a results-driven approach rather than the disclosed formula. In the Matter of Credit Suisse AG, Adm. Proc. File No. 3-17617 (Oct. 5 2016).
The Swiss Financial Market Supervisory Authority, the firm’s primary regulator, issued a rule regarding the recognition and disclosure of AUM and net new assets or NNA, key measures of new business. The rule provided banks with significant latitude regarding when NNA can be recognized. The policies and procedures for recognizing AUM and NNA were overly broad and gave limited guidance. Some employees took advantage of the flexibility.
Credit Suisse traced and reported as NNA the total net inflow of AUM from all clients. NNA could increase in two ways: 1) bringing new business into the Bank; or 2) reclassifying assets under custody or AUC to AUM for which the Private Bank unit provided investment advice or discretionary asset manage services in contrast to AUC assets which were only held. The firm’s public statements and disclosures stated that the classification of assets under management was individually assessed based on each client’s intent and objectives as well as the banking services provided.
NNA was a key performance indicator considered by the Bank and was used in external presentations. Targets were set for NNA by senior management which were tracked.
Beginning in the fourth quarter of 2011, and continuing through the end of the following year, the Bank failed to follow its disclosed policies regarding NNA in certain instances regarding four large clients. Bank officials essentially reclassified assets with minimal or unsupported justification to meet targets. For example, in the fourth quarter of 2011 the firm reclassified a portion of new AUC assets for a very large client. The reclassification was “influenced by the desire to reach targets,” according to the Order. Similar actions were taken with regard to a different large client in each quarter for the next year.
The Bank’s practices relating to its process for recognizing NNA through reclassification were inconsistent with its disclosures, rendering them misleading. As a result Credit Suisse violated Securities Act Section 17(a)(2) and 17(a)(3) and Exchange Act Section 13(a).
Credit Suisse undertook remedial actions and provided meaningful cooperation to the staff. The Bank facilitated the production of witnesses and documents from outside the United States, voluntarily conducted an internal investigation and furnished the results to the staff.
To resolve the proceeding the Bank admitted to the facts set forth in the Order and to violating the federal securities laws. In addition, it consented to the entry of a cease and desist order based on the Sections cited in the Order and agreed to pay a penalty of $90 million. See also In the Matter of Rolf Bogli, Adm. Proc. File No. 3-17618 (Oct. 5, 2016)(proceeding naming as Respondent the Chief Operating Officer of Credit Suisse’s Private Banking division, charged with causing the violations described above; resolved without admitting or denying the allegations but consenting to the entry of a cease and desist order based on the Sections cited above and the payment of an $80,000 penalty).