The SEC and Credit Suisse have settled over charges that the firm misrepresented the reporting of net new asset (NNA) amounts flowing into its wealth management business.
The SEC reports that Zurich-headquartered Credit Suisse AG has “agreed to pay a $90 million penalty and admit wrongdoing to settle charges that it misrepresented how it determined a key performance metric of its wealth management business.”
While Credit Suisse was asserting in public filings that the “ ‘classification of assets under management is individually assessed on the basis of each client’s intentions and objectives and the banking services provided to the client,’ ” the bank’s actual practice in 2011-2012 was “inconsistent with these disclosures,” the SEC says in one of two recent, related cease-and-desist orders.
“Rather than evaluating each client and determining what was appropriately recognized as NNA [net new assets] in a principled way, Credit Suisse, at times, took a results-driven approach that allowed [its achievement] targets to drive the timing and amount of NNA recognition,” according to the SEC. “In certain instances, certain Credit Suisse managers pressured other Credit Suisse employees to classify certain client assets as AUM despite concerns raised by others.”
One of the orders involving this performance-metric misrepresentation is focused on the bank itself, the other is focused on the former chief operating officer (COO) of the firm’s private banking division. In its bank-focused order, the SEC points to a “Senior Manager of Private Banking,” who pressured other employees to reclassify client assets.
In its second order, the former manager is identified by the SEC as Rolf Bögli, 52, the former COO of the firm’s private banking division, who has “agreed to settle charges that he was a cause of Credit Suisse’s violations.”
However, Bögli, who has agreed to pay an $80,000 penalty, neither admits nor denies the SEC’s charges that, from at least the fourth quarter of 2011 through the fourth quarter of 2012, he “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.”
NNA measures the “total net inflow of AUM [assets under management] from new and existing clients in a given period and measures Credit Suisse’s success in attracting new business,” the commission points out. “NNA is a key metric in assessing the wealth management business and therefore is an important disclosure for investors in financial institutions like Credit Suisse.”
In fact, NNA was “one of several key performance indicators tracked by Credit Suisse and used in external presentations,” the SEC also notes. “Credit Suisse senior management established targets for NNA. Certain members of senior management, tracked progress towards target numbers, and discussed current NNA on a regular basis.”
Crucially, “NNA could be increased in two ways,” the SEC order explains, “either by bringing new business into the Bank, or reclassifying AUC [assets under custody] to AUM when clients indicated a change in intent and sought advice or management on assets previously classified as AUC.”
In its report on the $80,000 Bögli fine, the SEC cites the example of “reclassified assets belonging to an ultrahigh net worth client, Client A … a long-standing client of Credit Suisse who received investment advice from the bank…. Over the course of 2011, there were inflows of new assets for Client A, which were classified as AUC.”
A relationship manager for Client A called for a “smaller reclassification [from AUC to AUM] to protect against the risk that the client would move assets from Credit Suisse,” according to the commission. And while other, unnamed Credit Suisse employees “also favored smaller reclassifications,” the SEC says that Bögli “wrote to other employees involved in the asset reclassification process, invoking the name of his supervisor, a Senior Executive of Private Banking, stating the Senior Executive ‘definitely wants to have’ reclassified Client A assets ‘included in the next NNA forecast.’”
In this way, more than one billion Swiss Franc assets of Client A were “reclassified from AUC to AUM in the fourth quarter of 2011,” the SEC says.
In a second example cited by the SEC, concerning another ultra-high net worth Credit Suisse client, identified as Client C, an NNA-reviewing employee “determined not to propose reclassifying Client C’s assets” from AUC to AUM in mid-2012.
However, the commission says, Bögli “asked the NNA Reviewing Employee to identify additional NNA. Expressing his disappointment with Credit Suisse’s NNA prospects at the time, Bögli communicated the need for a large reclassification, stating: ‘We need to do something pretty big. Need your flexibility and will ensure compensation of potential negative future impacts.’ ”
That assurance, the SEC points out, meant that any reclassification would not negatively impact the reviewing employee’s own compensation.
“Credit Suisse veered from its publicly disclosed methodology for determining net new assets,” according to the SEC. “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.”
That so-called “results-driven approach … allowed targets to drive the timing and amount of NNA recognition,” according to the SEC’s order, which also asserts that, at times, Bögli “pressured other Credit Suisse employees to classify certain client assets as AUM despite concerns raised by others.”
“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 J. Ceresney, director of the SEC’s enforcement division, says 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.”
At the time in 2009 that Bögli was appointed Swiss wealth management head, Credit Suisse summarized his career to that point, calling him an “experienced banker with a proven track record in management. With approximately 30 years of experience, he has managed various front-office and staff areas of UBS and its predecessor organizations. In 2004, he became Head of Wealth Management for UBS in its Region Mittelland. Based in the US since 2007, his most recent role was Chief Operating Officer Wealth Management Advisor Group USA.”
According to a November 2013 Bloomberg News report, Bögli (whose name was rendered in the report as “Boegli”) planned to step down at the end of that year “for health reasons,” with plans to return to his post after a leave of absence.
FTF News asked a Credit Suisse media representative to confirm that report and to explain if the NNA issue played any part in his 2013 departure.
A Credit Suisse spokesperson replied with the following statement: “Credit Suisse has agreed to a USD 90 million settlement with the SEC relating to the bank’s disclosure of its Net New Assets recognition practices. We cooperated with the SEC’s inquiry and have undertaken appropriate internal remedial efforts. It is important to note that there are no allegations of intentional misconduct or that NNA numbers were incorrectly reported. Credit Suisse clients were not harmed.”
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