Saturday, May 5, 2007

Prosecutors Seek to Hold Credit Suisse Banker Due to Flight Risk

Hafiz Naseem, a Credit Suisse investment banker accused of conspiracy and twenty-five counts of securities fraud for allegedly tipping a senior banking official at a Pakistani bank, may be forced to stay in jail for a while.  According to a story on Sharewatch (here), federal prosecutors have asked that Naseem be detained because he is a flight risk with few ties to the United States.  Naseem's attorney argued that he has a wife and two children in the U.S., one of whom faces surgery in the near future, and asked for a $1 million bail.  One item that came out at the hearing is that Naseem returned from a trip to his native Pakistan just a couple days before his arrest, and after his arrest he told an investigator, "One thing you guys should know is had I been guilty, I would have never come back."  Perhaps not the smartest thing to say because it arguably indicates that he could flee the country.  Moreover, his return may be more a sign that he thought he was getting away with tipping rather than proof that he committed no crime.  Leaving the U.S. would have cut him off from his position with Credit Suisse and the source of his information if he was in fact tipping.

The criminal complaint (available below) is interesting because it does not include as separate securities fraud counts any of the options trading in TXU that generated so much of the alleged proceeds, almost $5 million, from the tips to the unnamed Pakistani banker.  The SEC complaint (here) that alleges a 10b-5 violation based on the TXU options trading was filed in the Northern District of Illinois, while the criminal complaint is in the Southern District of New York and only alleges violations based on stock trades in companies other than TXU.  One reason for not charging the TXU options purchases in the criminal case may be a lack of jurisdiction in New York because the transactions occurred through foreign brokers and the trades were executed through the Chicago Board of Options Exchange (CBOE).  The TXU options transactions can be charged as part of a broad criminal conspiracy because jurisdiction is permissible in any district in which an overt act occurred, and the stock trades alleged as part of the conspiracy were executed through the New York Stock Exchange. 

Another interesting question is whether prosecutors will be able to extradite the unnamed Pakistani banker on insider trading charges.  A quick check shows that the extradition treaty that governs is the U.S.-United Kingdom extradition treaty of 1931, adopted at a time when Pakistan was a British colony.  Under Article 3 of the Treaty (here), the following offenses -- which can be based on aiding and abetting -- may reach insider trading:

17. Fraud by a bailee, banker, agent, factor, trustee, director, member, or public officer of any company, or fraudulent conversion.

18. Obtaining money, valuable security, or goods, by false pretences; receiving any money, valuable security, or other property, knowing the same to have been stolen or unlawfully obtained.

Whether insider trading can fit into these provisions to meet the dual criminality requirement will be one issue, and the state of U.S.-Pakistani relations could well affect the decision.  Whether the banker will ever set foot in the United States is certainly an open question. (ph)

Download us_v_naseem_complaint_may_3_2007.pdf

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