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Credit Suisse Securities Falsified Due Diligence Reports
February 7, 2012
[ by Melanie Gretchen ]
Credit Suisse Securities (USA) LLC, a FINRA nember since 1936, headquartered in New York, with 35 branch offices and about 4,300 registered reps, was sanctioned by FINRA for including in its communications false statements about the due diligence it conducted on hedge funds.
CSSU 's Private Banking USA unit (PBUSA) offered and sold alternative investments, including hedge funds and funds of hedge funds, primarily to high net worth individuals and institutions that met the "accredited investor" standard as defined by the Securities Act of 1933 and/or the "qualified purchaser" standard under the Investment Company Act of 1940.
PBUSA relationship managers were located in various CSSU offices, supported in their sales of those hedge funds and funds of hedge funds by CSSU's Alternative Investments group based in New York. That group was responsible for performing ongoing due diligence of hedge funds and funds of hedge funds not affiliated with CSSU, prior to being reviewed and approved for sale by the CSSU Product Development Committee. A separate group at CSSU was responsible for performing due diligence of affiliated hedge funds and funds of hedge funds.
FINRA Findings and Allegations. CCSU used communications with the public and internal materials containing false statements concerning due diligence efforts that the bank claimed it had performed or would perform with respect to offerings of hedge funds:
- It represented it engaged in or would engage in a variety of qualitative and quantitative due diligence activities for offerings of hedge funds and funds of hedge funds that, in fact, did not undertake.
- In addition, it failed to establish and maintain procedures that were reasonably designed to ensure that it was performing the due diligence it represented to customers it would perform, in violation of NASD Rules 210, 2211, 3010, and 2110.
- The book's purpose was to introduce qualified, high net worth customers and prospective customers to, among other things, the various types of hedge funds and funds of hedge funds the bank offered.
- It described the benefits of the various product categories for PBUSA customers, contained a discussion of hedge funds as part of an overall investment portfolio, provided brief overview information about certain representative offerings, described the general due diligence process at CSSU, and contained a summary description of alternative investment offerings at the firm.
- In fact, in the case of certain funds, the firmed little ongoing due diligence and when it did, it was done on a sporadic and irregular basis. During the period from November 2007 to December 2008, the bank failed to have sufficient procedures and systems to ensure that the due diligence efforts it promised in the materials were occurring. Rather, it did not maintain any written procedures detailing specific steps and requirements for either initial or ongoing basis.
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