CS Credit Suisse Group

By John Letzing and Aruna Viswanatha 

Less than three years after Credit Suisse Group AG paid billions and pleaded guilty to aiding tax evasion through its desk serving American clients, the Swiss bank is a focus of a sprawling new investigation into whether another unit kept doing the same thing.

The latest probe could lead to an indictment of Credit Suisse, fresh penalties or a potential curtailing of some business, among other options, people familiar with the matter said -- and highlights the difficulties prosecutors face in fulfilling promises to crack down on corporate misconduct.

The U.S. Justice Department in July 2014 discovered that American professor Dan Horsky was potentially hiding money overseas in his Credit Suisse accounts managed by the bank's Israel desk, according to a person familiar with the matter. That was just two months after Credit Suisse's May 2014 guilty plea to aiding tax evasion, and related $2.6 billion settlement.

Within a year, Mr. Horsky was cooperating in the department's resulting investigation, surreptitiously recording his Credit Suisse bankers and helping build yet another case against the bank, according to court documents and people familiar with the matter.

Investigators are determining if other clients with dual Israeli citizenship also got help in concealing American tax obligations by using their Israeli or other personal documents, people familiar with the matter said.

Mr. Horsky was recently sentenced to seven months in prison and prosecutors are weighing whether to punish Credit Suisse a second time, according to people familiar with the matter.

The New York Department of Financial Services, which has the ability to revoke Credit Suisse's charter in the U.S., also has opened an investigation, one person said.

A spokesman for Credit Suisse, said: "We will continue to fully cooperate with the U.S. Department of Justice." He declined to comment further. A Justice Department spokeswoman declined to comment.

The Justice Department has faced criticism since the financial crisis for what critics describe as allowing banks to avoid the harshest punishments for wrongdoing.

In 2014, prosecutors took a harder stance in several cases including against Credit Suisse. In addition to having to pay billions, the Justice Department demanded the bank plead guilty, a rare concession by a financial institution that DOJ officials said would prove consequential if the bank was ever caught engaging in misconduct again.

A year later, investigators were back. Mr. Horsky received a subpoena in April 2015, and agreed to plead guilty and cooperate extensively with the government as a de facto detective, according to court documents and people familiar with the matter.

Yet it wasn't until late 2015 that the Justice Department informed Credit Suisse's general counsel, Romeo Cerutti, that investigators had flagged an unspecified issue at the bank's desk serving Israeli clients, according to people familiar with the discussions. They instructed him to do nothing about it to avoid interfering with their examination, the people said.

That put Mr. Cerutti in the awkward position of having to stand by as a fresh probe into a painful issue from the bank's past unfolded, people said.

Employees of the Israel desk believe Mr. Horsky surreptitiously recorded their colleagues on several occasions during his cooperation, on the phone and in person, a person said.

Around the time Mr. Cerutti became roughly aware of what was going on, a senior manager at Credit Suisse's Israel desk traveled to Israel to meet with Mr. Horsky, according to people familiar with the matter. It isn't clear if Mr. Horsky recorded the meeting.

The senior manager and four other Credit Suisse employees from the Israel desk were later suspended by the bank, after it was fully briefed by the Justice Department on its probe last year.

It isn't clear how Mr. Horsky's accounts first drew attention. The Securities and Exchange Commission also is investigating the new allegations, people familiar with the matter said.

Mr. Horsky, a 71-year-old, now-retired professor of marketing science, made -- and often lost -- bets on startups in connection with his academic research, his lawyer said in a court filing.

Even as a big bet paid off and Mr. Horsky's Swiss bank accounts filled with more than $200 million by 2013, he was living in the Rochester, N.Y. condominium that he bought for $77,000 in the 1980s and was recently assessed at $55,100, according to public documents.

In early 2000, Mr. Horsky opened an account at Credit Suisse and deposited shares in a firm that would become QXL Ricardo, an internet auctioneer. He stated in documents that he lived in Israel, though he had long lived in the U.S. and never hid that fact from bank staff, according to a court filing.

When QXL Ricardo was sold in 2008, Mr. Horsky's $500,000 stake became worth $80 million and was poised to grow further.

In 2012, Credit Suisse employees started trying to obscure Mr. Horsky's control of his hidden accounts by removing his name from paperwork, according to a court filing.

Write to John Letzing at john.letzing@wsj.com and Aruna Viswanatha at Aruna.Viswanatha@wsj.com

(END) Dow Jones Newswires

February 22, 2017 19:02 ET (00:02 GMT)

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