Credit Suisse Admits Wrongdoing in S.E.C. Case

WASHINGTON â€" Credit Suisse on Friday became the latest big bank to admit wrongdoing to the Securities and Exchange Commission, striking a deal over its failure to comply with a cardinal rule of the financial industry.

The bank, based in Zurich, was accused of advising clients in the United States without first registering at the S.E.C. Credit Suisse paid $196 million to settle with the federal agency, which requires banks and other firms that offer investment advice to comply with basic registrations rules.

“The broker-dealer and investment adviser registration provisions are core protections for investors,” Andrew J. Ceresney, director of the S.E.C.’s enforcement division, said in a statement. “As Credit Suisse admitted as part of the settlement, its employees for many years failed to comply with these requirements, and the firm took far too long to achieve compliance.”

While the $196 million penalty is significant, the admission of wrongdoing underscored the importance of the case. It is the fifth such admission since the S.E.C. â€" in a major reversal â€" modified its longstanding policy of allowing defendants to settle without “admitting or denying” wrongdoing.

Under the new policy, adopted last year under its new chairwoman Mary Jo White, the S.E.C. decided to extract admissions of guilt in cases of egregious misconduct and blatant violations.

Speaking at an S.E.C conference in Washington on Friday, Ms. White highlighted certain instances where the agency would invoke the new policy, including those “where an admission can send a particularly important message to the markets.”

“Admissions are important because they achieve a greater measure of public accountability, which, in turn, can bolster the public’s confidence in the strength and credibility of law enforcement, and the safety of our markets,” she said at the conference, hosted by the Practising Law Institute.

In its maiden “admissions” case, the S.E.C. overturned its own preliminary settlement with the hedge fund billionaire Philip A. Falcone to extract an acknowledgement of wrongdoing. In August, Mr. Falcone and his hedge fund Harbinger Capital Partners agreed to admit wrongdoing and pay more than $18 million for supposedly manipulating markets and improperly putting certain investor redemption requests ahead of others.

The S.E.C. negotiated another landmark settlement with JPMorgan last year, forcing the nation’s biggest bank to admit wrongdoing in a case stemming from its $6 billion trading loss in London. The bank also paid a $200 million penalty.

The cases garnered praise from some of the S.E.C.’s biggest critics, who had long complained that the agency was too timid when pursuing Wall Street wrongdoing.

But the change may also come with some collateral consequences.

With admissions now on the negotiating table, more and more defendants might fight the S.E.C. rather than settle, given the high stakes involved. That possibility raised concerns that the agency lacks the resources to handle a sudden flood of courtroom battles.

But the S.E.C. says it recognizes the trade-off. And at the conference on Friday, Ms. White signaled that the agency is not backing down.

“My expectation is that there will be more such cases in 2014 as the new protocol continues to evolve and be applied,” Ms. White said.

The Credit Suisse case seemed to fit squarely into the S.E.C’s plans. The bank’s misconduct, it seemed, was both blatant and longstanding.

Credit Suisse employees provided cross-border investment advice to thousands of American clients for nearly 14 years without registering with the regulator, the S.E.C. said in an order instituting settled administrative proceedings. The bank communicated with American clients over the phone and through email and even managed to induce certain transactions, the S.E.C. said, all while collecting fees totaling around $82 million.

In some instances, the investors were some of the same American clients who had Swiss bank accounts at Credit Suisse. Criminal authorities in the United States continue to investigate potential tax violations in that case.

In a statement, Credit Suisse said: “We are pleased to have resolved this issue with the S.E.C. The Department of Justice investigation into tax-related issues remains outstanding, and while we continue to work to resolve this matter, the timing and outcome remain uncertain.”

The S.E.C. noted in its statement that the bank took steps to prevent violations of registration requirements, but said these measures failed because they were not carried out or monitored properly.

“As a multinational firm with a significant U.S. presence, Credit Suisse was well aware of the steps that a firm needs to take to legally conduct advisory or brokerage business with U.S. clients,” Scott W. Friestad, the senior enforcement official who oversaw the case, said in the statement. “Credit Suisse failed to effectively implement internal controls designed to keep its employees from crossing the line and being non-compliant with the federal securities laws.”