NEW YORK, Feb 1 (Reuters) - In a rare criminal prosecution to emerge from the financial crisis, two former Credit Suisse traders admitted on Wednesday to conspiring to manipulate the value of about $3 billion in subprime mortgage-backed securities in order to hide losses as the U.S. real estate market began to collapse in 2007.

The men, London-based David Higgs, 42, and Salmaan Siddiqui, 36, of McLean, Virginia, pleaded guilty in U.S. district court in New York to a criminal charge of conspiracy to falsify books and records and commit wire fraud.

Their one-time boss, Kareem Serageldin, 38, a U.S. citizen who lives in Britain, faces the same conspiracy charge and additional charges of falsifying books and records and wire fraud. Federal prosecutors said they do not consider Serageldin a fugitive even though he has yet to appear in the United States to answer to the charges.

There have been few prosecutions of individuals at high-profile banks for conduct that contributed to the financial crisis, but the Obama administration says it is stepping up investigations over the collapse of the subprime housing market.

Beginning in the fall of 2007, the three men and others began to manipulate the bond markets to alter Profit and Loss (P&L) numbers, according to phone calls recorded under Credit Suisse policy, the indictment of Serageldin said.

"If you want (P&L) to be a big number let me know what you want, then I'll just go through it with (Higgs) because obviously I can move things back to where they were ... if you're looking for a big number today..." one of the traders said in a Sept. 13, 2007 phone call with Seragaldin, the indictment said.

The investigation stems from $2.85 billion in writedowns that Credit Suisse took on collateralized debt obligations in 2008. Credit Suisse revealed those CDO losses in early 2008 and blamed them on a group of rogue traders who deliberately mispriced securities and on a failure of internal controls.

Credit Suisse was not charged in the case. A spokesman for the bank declined to comment on Wednesday. The company has cooperated with the government's investigations.

Separately, the U.S. Securities and Exchange Commission filed civil charges against Serageldin, Higgs, Salmaan Siddiqui and a fourth trader, Faisal Siddiqui. The Siddiquis are not related.

Serageldin's lawyer, James McGuire, said his client "believes he has done nothing wrong and nothing illegal." McGuire said that over a four-year-long investigation, Serageldin had fully cooperated with authorities in Britain and the United States, including five or six interviews.

"The indictment comes as some surprise to us."

A lawyer for Faisal Siddiqui could not immediately be reached to comment. Higgs' lawyer declined comment after his court appearance and Salmaan Siddiqui's lawyer said his client had been cooperating with the probes for some time.

Robert Khuzami, head of the SEC's enforcement division, said in a statement that "the senior bankers falsely and selfishly inflated the value of more than $3 billion in asset-backed securities in order to protect their bonuses and, in one case, protect a highly coveted promotion."

In the case of Higgs and Salmaan Siddiqui, federal prosecutors brought a single conspiracy charge carrying a maximum prison term of up to five years, but not a charge of securities fraud, which carries a prison term of up to 20 years.

The additional substantive charge brought against Serageldin does carry a maximum possible prison term of 20 years. Serageldin had been managing director/global head of structured credit at Credit Suisse in charge of Higgs and other traders.

"While the housing market was collapsing, the defendants profited, not by correctly predicting the trend, but by cooking the books," FBI Assistant Director in Charge Janice K. Fedarcyk said in a statement.

Higgs told a federal judge that while he was a managing director in the investment banking division of Credit Suisse in London in 2007 and 2008, he and others manipulated and inflated the cash bond position markings of a trading book, called ABN1, to hide losses.

"As a result of my actions, senior management of Credit Suisse was given the false impression that the ABN1 book was profitable and caused Credit Suisse to report false year-end numbers for 2007 in their books and records," Higgs said in court.

He said he altered the records because he wanted to remain in good favor with Serageldin and "enhance" his job performance. He said he stood to receive a year-end bonus. Salmaan Siddiqui, at a separate plea proceeding, told a similar story about the way the traders falsified records.

The indictment said that Serageldin directed the scheme to improve his job performance and make him eligible for bonuses and promotion. His 2007 bonus was more than $1.7 million and his Incentive Share Unit Award was more than $5.2 million, the office of Manhattan U.S. Attorney Preet Bharara said. The $5.2 million was rescinded by Credit Suisse.

Bharara said on a conference call with reporters that Serageldin is not considered a fugitive, but the government would extradite him if necessary to face the charges.

"It is a tale of greed run amok, piggybacking on one of the worst economic dislocations our nation has ever experienced," Bharara said.

Officials said the victims in this case were really the shareholders of Credit Suisse because Credit Suisse's proprietary positions had been manipulated.

Higgs, who apologized for his conduct, said in court that his boss and others had known about the manipulation and assisted in it. He looked dejected and spoke quietly in describing his conduct to U.S. District Judge Alison Nathan.

Higgs and Salmaan Siddiqui were released on $500,000 bond each. Higgs will be allowed to return to his home in Britain while the investigation continues.

In court, Higgs said traders were required to price securities that they held on a mark-to-market basis of the current market price of the asset or liability or similar assets or liabilities, according to accounting standards and the bank's policy.

Beginning in 2007 when the U.S. real estate market slumped and mortgage delinquencies increased, the value of securities backed by mortgages decreased and the market lost its liquidity.

Higgs told the judge that he and others manipulated the records "rather than mark these securities down to market as we were required to do."

The cases are USA v Higgs , U.S. District Court for the Southern District of New York No. 12-00088; USA v Salmaan Siddiqui , U.S. District Court for the Southern District of New York No. 12-00089; USA v Kareem Serageldin, U.S. District Court for the Southern District of New York, No. 12-00090; SEC v Kareem Serageldin, David Higgs, et al U.S. District Court for the Southern District of New York No. 12-0796.

For Serageldin: James McGuire of Mischcon de Reya.

For Higgs: John Brownlee of Holland & Knight.

For S. Siddiqui: Ira Lee Sorkin of Lowenstein Sandle.

For F. Siddiqui: Edward Hayes at Ed Hayes PC.

(Reporting by Grant McCool, Basil Katz and Sarah N. Lynch)

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