Credit Suisse last week agreed to pay a $90 million penalty and admit wrongdoing to the Securities and Exchange Commission to settle charges that it misrepresented how it determined a key performance metric of its wealth management business. A former executive agreed to settle charges that he was a cause of Credit Suisse’s violations.
An SEC investigation found Credit Suisse veered from its publicly disclosed methodology for determining net new assets (NNA), a metric valued by investors in financial institutions to measure success in attracting new business. “Disclosures stated that Credit Suisse was individually assessing assets based on each client’s intentions and objectives, but Credit Suisse at times, instead, took an undisclosed results-driven approach to determining NNA in order to meet certain targets established by senior management,” the SEC said.
“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 Ceresney, Director of the SEC’s Enforcement Division, said in a statement. “Credit Suisse’s failure to disclose this results-driven approach deprived investors of the opportunity to fairly judge the firm’s success in attracting new money.”
According to the SEC’s orders, Rolf Bögli, who served as chief operating officer of the firm’s private banking division, pressured employees to classify certain high net worth and ultra-high net worth client assets as NNA despite concerns raised by employees most knowledgeable about a particular client’s intent.
The SEC’s orders find that Credit Suisse violated Section 17(a)(2) and (3) of the Securities Act and Section 13(a) and (b)(2)(A) of the Securities Exchange Act and Rules 13a-1, 13a-16, and 12b-20. Bögli neither admitted nor denied the SEC’s findings that he was a cause of certain Credit Suisse violations. He agreed to pay an $80,000 penalty.
In accepting the offer, the SEC said it took into consideration Credit Suisse’s remedial efforts and cooperation afforded to the SEC staff. “Notably, Credit Suisse actively facilitated the production of witnesses and documents from outside the United States,” the SEC said. “Credit Suisse voluntarily conducted an internal investigation and provided the results of that inquiry to the staff.”
Credit Suisse also discontinued its previous practice of providing outflow protection, the SEC said. In addition, Credit Suisse updated its assets under management/NNA (AUM/NNA) policy to introduce more specific criteria and indicators to evaluate whether client assets qualify as AUM and modified its governance regarding NNA to transfer substantial decision-making authority from the business to the independent group finance function. Updating the AUM/NNA policy resulted in an adjustment of CHF 46.4 billion of AUM to AUC in the third quarter of 2015, according to the SEC.
Credit Suisse also retained an independent consultant who reviewed and assessed its revised policies and procedures and the implementation of those new policies and procedures.