A former Credit Suisse trader accused of inflating subprime mortgage-related bond prices faces extradition to the United States after being arrested in Britain, police said on Thursday.

Officers from the Metropolitan Police Service's Extradition Unit arrested Kareem Serageldin, 39, on Wednesday in connection with the alleged $540 million (419 million euros) fraud.

He was taken into police custody and extradition proceedings will commence at London's Westminster Magistrates' Court later Thursday, Scotland Yard said.

Serageldin, a US citizen, is the former head of Credit Suisse's structuring products group.

The Financial Times reported that he was arrested outside the US consulate in London and was expected to be returned to the US later this week.

US authorities charged Serageldin and two other former employees from the bank's US trading desk in February with manipulating the value of certain mortgage securities to inflate their bonuses.

David Higgs and Salmaan Siddiqui, who worked under Serageldin in the investment banking division of the Swiss bank, pleaded guilty in a New York court in February to one count of conspiracy to falsify books and records and commit wire fraud.

Each face a maximum sentence of five years in prison and a fine of at least $250,000.

The defendants were charged with jacking up the prices of asset-backed bonds, which comprised subprime residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS) in Credit Suisse's accounts.

Serageldin, Higgs and Siddiqui were able to secure significant year-end bonuses for themselves through the alleged fraud since bonus amounts were largely based on trading books' profitability, officials said.

"While the residential housing market was in free fall, and shock waves were reverberating throughout the economy, these defendants decided they were above the rules of the market and above the law," said Preet Bharara, the Manhattan US attorney general.

The fraud allegedly took place between late 2007 and early 2008, as the collapsing US housing bubble sent millions of home mortgages into default and wiped off hundreds of billions of dollars in value from mortgage backed securities widely held by banks and other institutional investors.

In March 2008 Credit Suisse announced if was restating its 2007 year-end earnings with a $2.65 billion write-down, a large portion of it related to the fraud.