Heavy penalties hit Credit Suisse First Boston

Credit Suisse First Boston has been fined by the supervisory authorities in London Keystone Archive

Two subsidiaries of the investment bank Credit Suisse First Boston have been punished with fines totalling £540,000 (SFr1.28 million) by a city watchdog in London.

Britain’s Securities and Futures Authority said CSFB International and CSFB Europe, part of the Credit Suisse Group, had been fined and reprimanded for management failings for not properly overseeing two of their traders.

CSFB has been the subject of regulatory investigations in several countries this year, including the United States.

In this latest case, one of the CSFB traders involved was suspended from the SFA register for one year, fined £50,000 and ordered to pay £10,000 costs.

CSFB International was fined £400,000, the second largest SFA fine for a breach of a principle that requires regulated firms to control all aspects of their business in a responsible manner. It also has to pay £30,600 in costs.

CSFG Europe was fined £140,000 and ordered to contribute £10,000 towards costs.

Not controlling business

In its ruling, the SFA said the first example of not controlling business occurred in relation to derivative products.

A trader at CSFB International provided two customers with “misleading documentation and inaccurate valuations” of complex derivatives that CSFB International sold them between February 1998 and June 1999, the body said.

This meant that the customers were not properly informed about the risks of these derivatives, nor were they aware that they were making “substantial losses” by holding them, it added.

On discovery of the problems by senior management, CSFB International cancelled the transactions and had since dismissed the trader.

In the second instance, the head of the convertible bond-trading desk at CSFB Europe overstated his month-end profits from August 1998 to April, 1999.

The SFA said the fact that he was able to do that for so long constituted a failure of management at the firm.

It added that with his actions, the trader had breached a principle of the Financial Services Authority requiring “high standards of integrity and fair dealing”.

A spokeswoman at CSFB in London said the bank declined to comment on the issue.

Malpractice allegations

Last week, the “Wall Street Journal” reported that CSFB had agreed to pay $100 million (SFr166 million) in penalties to resolve accusations of malpractice in the United States.

Citing sources close to the investigation, the newspaper said the sum would resolve a U.S. federal investigation into the way CSFB dolled out shares in hot stock offerings.

The settlement – details of which are being negotiated – was expected to be announced close to the end of the year, the newspaper said.

CSFB would neither admit nor deny guilt as part of the settlement, which is usual in these cases.

The bank is making no comment on the article.

swissinfo with agencies