The Making of a Mismarker: The Case of the Only Banker Jailed in the U.S. for His Role in the Financial Crash by Joe McGrath


In 2013, Kareem Serageldin pleaded guilty to conspiracy to falsify books and records of a financial institution. He was mismarking the value of securities at Credit Suisse in order to make them appear more valuable than was really the case. Judge Hellerstein sentenced him to thirty months in prison for his crime. This was far below the presumptive fifty-seven months’ imprisonment in the sentencing guidelines. The judge indicated that a departure from the sentencing guidelines was justified in the particular circumstances of this case because Serageldin was operating in a climate in which such wrongdoing was routine. To what extent, if any, did this culture “make” Serageldin a mismarker? Drawing on multiple sources, including the SEC’s complaint against Serageldin, the transcript of the hearing in which Serageldin pleaded guilty (SDNY, Feb 12, 2013), and the transcript of his sentencing hearing (SDNY, Nov 22, 2013), it is shown that there is a significant dissonance between the SEC’s account of the crime, and Serageldin’s retelling and characterization of it. The purpose of this Essay is to explore how Serageldin distorts the facts of his case to ‘neutralize’ his crime. Neutralization theory suggests that wrongdoers will rationalize their actions to preserve their view of themselves as otherwise law-abiding people in good moral standing. Using the Serageldin case as a vignette, this paper will demonstrate that white-collar offenders may also engage in self-deception, by reaching an accommodation between their actions and their understandings of those actions, to convince both themselves and receptive audiences that they are less blameworthy and less responsible for their wrongs.

I. “We Should Mark These Down Because Someone is Going to Spot This”

The following account of the case is constructed mostly from the SEC’s complaint against Serageldin. It contains extracts from recorded internal phone calls within Credit Suisse, thereby providing a real-time narrative of the fraud in Serageldin’s own words. The court transcripts, by contrast, provide a post-hoc account of the fraud from the personal perspective of Serageldin. These transcripts are used in subsequent sections of this Essay to complicate and problematise this account.

In its statement of allegations, the SEC contended that Serageldin, the Global Head of Structured Credit Trading at Credit Suisse, engaged in a conspiracy to mismark the value of securities with David Higgs, the Head of Hedge Training, and Faisal Siddiqui and Salmaan Siddiqui, traders in New York. It noted that the mismarking commenced in August 2007 and concluded in January 2008, a period in which the subprime credit crisis escalated. The traders were required to value their securities in fair and accurate terms every day, at the value at which they could be sold between market players on the date of valuation. Serageldin and his colleagues were managing mortgage-backed securities in a particular trading book called ABN1. The markets were turbulent in August 2007, so these traders feared that any deterioration in value to these securities would cause significant losses. Meanwhile, a new system was also implemented internally at Credit Suisse to provide senior management with more real time information on pricing fluctuations. The new system subjected traders to increased scrutiny. Up to that point, the securities had been priced by an automatic service, but then, according to the SEC, the traders started to manually mismark the securities to meet performance targets and hide losses. On August 29, for example, when the value of these securities declined by $75 million, as valued by the automatic pricing system, the traders manually changed the prices of the securities, over and over, on a trial and error basis, to artificially boost their value.

By September, the SEC alleged that the traders were regularly inflating the values of the securities. In some instances, profits from trades were being used to offset the losses on the mortgage-backed securities. Recordings of phone calls made by Serageldin within Credit Suisse indicated that he was responding to management pressure when he instructed his subordinates to inflate the values of the securities. On October 17, 2007, he stated, “I want to be up a little bit of money today, because everyone’s going to think we’re going to be up and be very surprised if we’re not.” On another occasion, on January 4th, 2008, he was recorded stating that the securities for year-end had been mismarked too high. He indicated that the value of these securities had to be lowered to avoid detection. He stated, “We should mark these down because someone is going to spot this. On the fixed rates we have some room, but not on the floating rates we don’t.” He approved these mismarkings, subsequently indicating again that he was responding to performance expectations that he would generate a profit from his trades. On January 7th, 2008, he was recorded stating, “People are expecting us to make money. [The head of Credit Suisse Group’s investment bank] knows what our positions are. Today, we have to be up at least 10 bucks [million] . . . I know it’s hard when you’ve got things that aren’t necessarily quite marked where they need to get marked.”

Credit Suisse subsequently stated it generated $7.12 billion in profit for 2007, $1.16 billion of which was generated in its final quarter. Not long after, however, it determined that these figures were inaccurate. Upon conducting an internal review, Credit Suisse restated its profits on March 20, 2008, concluding that profits were $2.65 billion lower than previously stated. The ABN1 book was written down in the amount of $1.3 billion. Serageldin subsequently pleaded guilty to conspiracy to falsify books and records of a financial institution in the Southern District of New York. Judge Hellerstein sentenced him to 30 months in prison and fined him $150,000. Serageldin became the only banker to go to jail in the US for having a role in causing the financial crisis.

II. Self-Deception as Neutralization

Neutralization theory has its origins in the early work on differential association theory, though it finds support from work more broadly in sociology and psychology. Edwin Sutherland noted that businessmen, even while engaged in crime, rarely viewed themselves as criminals. He suggested that crime was learned behavior, and that the propensity to engage in crime depended on the frequency and intensity of associations with other criminals—associations through which motives, desires, and rationalizations were shared. Donald Cressey noted that embezzlers would often rationalize their crimes in a way which allowed them to mitigate their wrongdoing and to convince themselves that their actions were compatible with their identities as moral, upstanding people. Moreover, Cressey demonstrated that criminal associations were not always necessary pre-conditions for crime; the embezzlers and their colleagues identified as law-abiding people. Scholars have emphasized, however, that corporate cultures can inhibit or encourage crime. Performance pressures applied by management and the drive for profit, for example, can create criminogenic pressures. Research has shown that people will subjugate their individual sense of right and wrong to fit within the decision-making dynamics of groups, that people will engage in reprehensible behavior on instruction from authority, and that social contexts can facilitate individual wrongdoing. The corporate climate, and specifically the attitudes of co-workers, boards of directors, and others, can be a much more influential force on the decision to engage in white-collar wrongdoing than the moral standards of those known through other social associations. Regardless of the organizational context, however, when white-collar criminals attempt to neutralize their crimes, they are attempting to lessen their blameworthiness and resist a degradation ceremony which transforms them into a criminal.

Neutralizations may indicate that the offender is aligned with broader social norms of right and wrong because these norms are a baseline against which departures are measured. For this reason, neutralizations may also be positively linked with desistance from crime. Neutralizations can also indicate respect for victims because they signal that victims are owed an explanation. As originally conceived by Sykes and Matza, there are five techniques of neutralization. Wrongdoers may deny responsibility (“I didn’t mean it”), deny the injury (“No one was hurt”), deny the victim (“They deserved it”), condemn the condemners (“You’re just as bad”), or appeal to higher loyalties (“I didn’t do it for myself”). These techniques can overlap, depending on the offence and the offender, and have been mapped along different thematic lines by some researchers. They may precede and enable crime, “making the criminal”, or they may act as post-hoc rationalizations (the latter are easier to study). Some scholars have also added to the list of neutralizations. Some have employed the metaphor of the ledger to explain how offenders will justify a bad act offsetting it against a good act. Others say wrongdoers claim that their actions were necessary where, for example, they were required to survive in a cut-throat business sector. In other cases, their actions may simply have been convenient. Some wrongdoers have justified their actions by comparison (“If I wasn’t shoplifting I would be doing something more serious”) and by postponing their guilt until later (“I just didn’t think about it at the time”). Unfortunately, neutralization theory has rarely been applied to explain white-collar criminality, though some suggest that white-collar and street criminals exhibit similar thinking patterns. Moreover, the techniques of neutralization have rarely been extended since initially developed, with some exceptions already noted above, and little emphasis is placed on offender’s own subjective accounts of their wrongdoing. As Shadd Maruna and Heith Copes note, “Unfortunately, the criminological community appears largely satisfied with the five rationalizations listed by Sykes and Matza and has not prioritized systematic analysis of the subjective worlds or belief systems of criminal actors.” This Essay addresses this criticism of the literature by focusing on the subjective rationalizations articulated by Serageldin to extend neutralization theory, examining self-deception and fact distortion as a technique of neutralization in the white-collar crime context.

The ability to believe in law-abiding norms, while simultaneously believing that your departure from those norms is justified, is explored in cognitive dissonance theory. As is the case with those who neutralize their behavior, people may believe that they are law-abiding persons, even as they engage in law breaking. Cognitive distortions may allow the offender to engage in self-deception as to the extent of their responsibility and mitigate their guilt for their crimes. Offenders may neutralize their wrongdoing in this way by “distorting the facts” of the offending, saying that the full facts of the case are unknowable (“There is no truth”), denying the facts of their involvement (“It is untrue”), or adding to the story (“It’s not the whole truth”). Neutralizations allow offenders to escape and change their realities. Offenders may minimize and misconstrue facts, and be less able to remember the harmful aspects of their actions. Selective amnesia eliminates the event from existence, reducing it to an “unreality.” People may begin the process of self-deception by knowing their representations are false, but practice and rehearse them so that that they come to believe their lies are true. Alternatively, they may misremember by recalling their positive actions rather than their negative actions, forgetting inconvenient truths that cast them in a bad light. Offenders may deny the event happened, deny that they were present, or deny that force was used (even while brandishing a weapon). They may morally disengage by denying the infliction of harm, denying intent, or distorting the nature of their acts by claiming different motives. They may say, for example, that they were motivated by professional ethics and were not financially motivated (even as they charged for services they didn’t provide). White-collar criminals, in particular, have been known to legitimize their actions by claiming that they were not motivated by personal gain. In more extreme circumstances, offenders have been known to invent new facts, justifying unhealthy or risky behavior by supposing a cure may be available in the future. In organizational settings, where wrongdoing is routine and normal, it may be particularly easy to routinise and minimize misconduct when one’s responsibility for it is diluted and normalized.

Serageldin appears to be both deceiver and deceived. He distorts the facts of his fraud by denying his influence, control, and role in the crime. Neutralization theory is applied by demonstrating how this offender sought to minimize his involvement in his crime by deceiving himself as to his involvement in it. Though the SEC demonstrates that he was the architect of the fraud—which persisted over a period of several months, as evidenced by recorded phone calls from within Credit Suisse—Serageldin manages to recast himself as a passive conspirator in the fraud who was led into illegality for a brief period of time by his subordinates. He professes that he discovered the fraud as it entered its concluding phase, thereby presenting his actions as more aberrational in nature, standing in contrast to his otherwise good character.

Through representations by counsel, his own statements, and a character reference on his behalf, Serageldin is depicted as a particularly sympathetic character. He is not a grasping deviant motivated by greed but the son of immigrants who achieved academic and professional success, against the odds, by working hard. He is a victim of the larger credit crisis, mismarking the mortgage-backed securities he was trading as the subprime credit crisis escalated. The significance of this narrative is that it emphasizes Serageldin’s otherwise good character in order to minimize and neutralize his bad decisions. Serageldin believes the best of himself and believes that he did the best he could in the circumstances. Nevertheless, he also misrepresents his actions, achieving an accommodation between them and his subsequent understandings of them, to explain them and ultimately to explain them away, garnering sympathy and achieving a more lenient punishment in the process.

III. “I’m Better Than My Crime”

Serageldin did not deny that he mismarked securities or that he committed a crime. Instead, he deflected and minimized his responsibility and culpability in other ways. In particular, Serageldin was successful in convincing the court at sentencing that he operated in a culture which facilitated the mismarking of securities and that the practice was rife. His counsel used this claim to argue that imprisoning Serageldin would be “a huge unwarranted disparity to what other people who likely were mismarking portfolios across Wall Street and maybe . . . within Credit Suisse.” Judge Hellerstein agreed that Serageldin’s misconduct was not isolated, saying, “It’s hard for me to believe that the only cooking of the books case is involving Mr. Serageldin.” Instead, he acknowledged that Serageldin was “in a place where there was climate that made it conducive to what he did. The bank was as you call it, mismarking, but showing false profits much more extensively than Mr. Serageldin was doing. Mr. Serageldin’s role was a small piece of the overall evil climate within the bank and with many other banks.”  Under questioning from the Court, the prosecution acknowledged that Mr. Serageldin’s mismarkings, totaling $100 million at its highest estimate, amounted to “a very low percent” of the $2.65 billion in mismarkings at Credit Suisse.

By framing and locating Serageldin’s wrongdoing in this way, it was contextualized and diluted. This favored Serageldin significantly because it allowed Judge Hellerstein to infer that Serageldin’s misconduct was routine and commonplace at Credit Suisse. The corporate culture facilitated wrongdoing; it influenced the “making” of a mismarker. Judge Hellerstein did not condone his crime but he made it clear that he considered this grounds for mitigating his blameworthiness and his punishment. Judge Hellerstein concluded that there was “a terrible climate in the bank because people tend to know what other people are doing. And Mr. Serageldin’s crime, and it is a crime, was a crime that was duplicated in many other departments. I think that’s a fair inference for me to take, and I have to put that into finding the fair sentence also. It doesn’t mitigate his crime, but it does mitigate his culpability in a sense.”

Curiously, while a more traditional analysis might consider Credit Suisse the victim of this crime, the bank was recast as a conspirator and a transgressor. Whether this is merited is more open to debate than the court allows. In particular, it may be noted that Credit Suisse was quick to identify the misconduct and restate its earnings, doing so just days after it posted its year end profits. This may suggest that the company did not tolerate wrongdoing, sought to remediate it quickly, and distance itself from mismarking. In addition, Serageldin’s counsel argued that because Credit Suisse withheld $25 million in deferred compensation from him, $20 million of which was earned prior to the mismarking taking place, Credit Suisse already punished him in a manner akin to a fine of “a life changing amount.” Judge Hellerstein ultimately refused Credit Suisse any restitution, as it might normally do with a victim in these circumstances, concluding that “restitution is not appropriate. I think the bank, having created a climate in which Mr. Serageldin has operated and not having shown to what extent, if at all, the bonuses paid to him would not otherwise have been paid, is not entitled to restitution.” This suggests that Serageldin simultaneously managed a rare feat: denying the victim while also blaming the victim for his crimes, divorcing his acts from their results.

Moreover, as is common with white-collar criminals, Serageldin’s crime was contextualized against a life of educational and professional successes, to characterize it as aberrational and isolated. Counsel for Serageldin emphasized that he is a “high quality” person. Given his lack of previous criminal convictions, his counsel emphasized that “the government will offer nothing outside of the indictment that he’s done wrong in his life. He’s led an otherwise very admirable life here.” Moreover, Serageldin was born to Egyptian parents of modest means who immigrated to America to find a better life for their son. Serageldin, it was suggested, succeeded against the odds, through hard work and force of character, to excel academically. He graduated from Yale and earned seniority at Credit Suisse in his early thirties, earning $7 million a year at the height of his career. At sentencing, his mother, giving character evidence on his behalf, explained that Serageldin was bullied at school and had to work harder than everyone to win “that respect and approval that were so hard, the acceptance that were so hard to come by as he was growing up.” These arguments resonated with Judge Hellerstein. He commended Serageldin’s mother for representing Serageldin’s character and acknowledged, “I too am a son of immigrants who came to the United States to find an opportunity that they never would have had had they not immigrated.” Serageldin also expressed his remorse to the Court, again framing his crime against a backdrop of his good character and achievements, stating, “I’m better than my crime. Your honor, I always believed that by working harder than anyone I could succeed at almost anything. That was the case throughout my education, as well as my time at Credit Suisse.” Gathering these threads together, Serageldin draws on his past—his professional and educational successes—to contextualize his crime as isolated and aberrational, a not uncommon tactic employed by white-collar criminals where “a lifetime of socially acceptable and desirable behavior in one arena is used to excuse an occasional indiscretion in another.”

In addition to this tactic, however, Serageldin also minimized his responsibility for his crime by arguing that he played a passive rather than an active role in it. Nevertheless, the SEC identified him as the initiator of the fraud, detailed instances in which he directed his subordinates to mismark the securities, and noted that Serageldin was experiencing organizational pressures to generate profit. Serageldin claimed that he discovered the mismarkings in late 2007 when he received a report which detailed the aggregated prices of securities. From his own account at pleading, he passively submitted to the crime, only “after learning that these men had been mismarking . . . I allowed it to continue, and I agreed to allow additional false records to be generated.” By claiming that he discovered the mismarkings in late 2007, not August 2007, as the SEC alleged, he also contested the SEC’s evidence that he was involved in mismarkings over a much more extended period of time. In temporally limiting the fraud, this also presented the crime as more aberrational in nature.

In addition, Serageldin disputed the SEC’s statements that his fraud was financially motivated. The SEC asserted that Serageldin was motivated to mismark the securities because “accurately recording the decline in value . . . would vaporize Defendant’s hopes for multi-million dollar year-end bonuses, and, in the case of Serageldin, imperil a highly-coveted promotion.” No evidence was provided in the SEC’s complaint that Serageldin was working towards an imminent promotion. However, as noted above, Serageldin had clearly stated in recorded phone calls that he was experiencing organizational pressures within Credit Suisse to generate profit. Nevertheless, Serageldin argued that his motivation was not financial in orientation. He stated at pleading, “The motivation, your Honor, was to protect my reputation at the bank.” He explained that “within the bank I had a reputation to be able to manage these positions in a very difficult market while everyone else was losing money . . . I was trying to maintain that reputation.” Counsel for Serageldin also suggested at sentencing, “[T]he primary motivation of Mr. Serageldin here was really a terrible misjudgment to avoid embarrassment.” Judge Hellerstein, however, was skeptical of his explanation, determining that Serageldin’s reputation would not have suffered any damage relative to his colleagues by the reduction in value for the securities, because there was a precipitous drop in the value of the market for such shares, more generally.

Significantly, Serageldin was also keen to emphasize that “today is the most difficult day of my life. I never imagined I would be standing here awaiting sentencing for a crime.” In doing so, he appears to have expressed surprise and confusion about the circumstances of his actions, distancing himself from the crime he committed. The SEC, however, provides significant evidence to demonstrate that Serageldin was calculated in his decision-making processes to commit the crime. In one instance, for example, when he thought that Credit Suisse might detect the overpriced securities, Serageldin instructed his subordinates to mark the securities down. On another occasion, he made requests of third-party traders to provide false independent assessments of the values of the securities to ward off internal staff at Credit Suisse who might have concerns that the books are inflated in value. By attempting to evade detection, Serageldin demonstrates that he knew that he was engaged in wrongdoing at that time. And by reshaping his actions and his motivations, he sought to minimize his responsibility and blameworthiness. He was revising reality and deceiving himself as to his engagement in crime, neutralizing his actions in the process.


The criminal justice process has been described as a degradation ceremony in which the “offender is moved from the status of law-abiding citizen to that of convicted felon.” Neutralizations, however, serve to mitigate this degradation by giving context and history to crime. Constructing a personal narrative also allows offenders to make sense of their crime and how it fits or challenges their identity, even where that identity is a result of myth-making. Given the prominent status of white-collar criminals, and their integration into society as pillars of the community, it seems likely that they are particularly apt to rationalise or neutralise their departure from conventional society norms in a way that helps preserve their status.

Moreover, corporate contexts and corporate cultures may facilitate the application of neutralization techniques. When operating within a culture where wrongdoing is routine and regulatory controls are insufficient, wrongdoers may not be able to accurately evaluate why they did certain actions or fully appreciate the unethical nature of those actions. They do so to maintain their positive images of themselves as moral, law abiding persons. With respect to other aspects of their lives, they may really be those moral persons. At the time Serageldin is sentenced for his crimes, he seemed to recognize that his actions were unethical, that he made mistakes and exercised poor judgment, but also sought to explain how his chronic pattern of offending was aberrational. He rationalized and neutralized it. By reaching into his past, drawing on his academic and professional success, emphasizing that his work ethic helped him beat the odds as an immigrant at a disadvantage, he built a positive image of himself, and diminished his unethical behavior. He presented himself as passive conspirator whose only issue was not saying no to his deviant subordinates. His understanding of his wrongdoing is that he followed his subordinate colleagues into illegality and was not motivated by money. He didn’t understand how he found himself before the criminal courts. It is not clear, however, whether he was forgetting what he would rather not remember, fabricating memories, or merely spinning a false narrative that was most sympathetic to his cause.

This essay does not uncritically accept Serageldin’s own explanations for his crimes; it demonstrates how they conflict with the SEC’s account of his conduct and with the recordings of his conversations within Credit Suisse. In highlighting this conflict, and in showcasing Serageldin’s neutralization of his conduct, this essay demonstrates how Serageldin allowed himself to reach an accommodation between his actions and his understandings of those actions. Moreover, while neutralization techniques are often thought of as cognitive distortions, Serageldin shows how they may also be ways of achieving sympathy. Apologizing, justifying, and explaining wrongdoing is evidence of socially acceptable behavior and attitudes which can make your audience think better of you, but which can also allow you to think better of yourself. While it is possible that Serageldin is consciously mispresenting his wrongdoing to get a more lenient punishment, it also seems possible that he may honestly misremember his actions, and the context in which they occurred, in order to preserve his self-view that he did the best he could in the circumstances. People want to believe the best of themselves—that they are honest and moral. Memories of actions are often self-serving. The unethical aspects of decisions fade in the retelling. Serageldin is no different; he is the fallen hero of his own narrative.


Dr. Joe McGrath is an assistant professor and lecturer at Sutherland School of Law, University College Dublin, Ireland.


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