Ex-Credit Suisse Brokers Charged With Supbrime Fraud

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The New York Sun

WASHINGTON — Federal regulators today accused two former Wall Street brokers of defrauding their customers by making more than $1 billion in unauthorized purchases of securities tied to subprime mortgages.

The Securities and Exchange Commission alleged in a civil lawsuit that two former Credit Suisse Securities brokers led corporate customers to believe that auction-rate securities being purchased in their accounts were backed by federally-guaranteed student loans and were safe like cash.

The SEC said the securities were backed by subprime mortgages, collateralized debt obligations, and other high-risk investments. The agency is seeking unspecified restitution and civil fines against the brokers, Julian Tzolov and Eric Butler, who were suspended by Credit Suisse last year.

Attorneys representing Messrs. Tzolov and Butler didn’t immediately return telephone calls seeking comment this afternoon.

Credit Suisse said the two resigned last September “after we detected their prohibited activity and promptly suspended them.”

The New York investment firm said it immediately informed the SEC of their activities and has continued to assist the agency in its investigation.

An associate director of the SEC’s New York regional office, Andrew Calamari, said the case shows “how the recent turmoil in the subprime market has affected even investors who had no intention of buying subprime securities.”

In its suit filed in federal court in Manhattan, the SEC said Messrs. Tzolov and Butler deceived foreign corporate customers by sending them e-mail confirmations in which the terms “St. Loan” or “Education” were added to names of other types of securities purchased for the customers.

The two brokers also frequently deleted references in the e-mails to “CDO,” for collateralized debt obligations, or “mortgage” from the names of the securities purchased, the agency said. CDOs are complex financial instruments that combine various slices of debt.

As a result, customers were stuck holding more than $800 million in securities that lost their liquidity and value when the market for auction-rate securities began to collapse in August 2007, according to the SEC.

In recent months at least eight major investment banks, including Merrill Lynch & Co., Goldman Sachs Group Inc., Citigroup Inc., and Morgan Stanley, have signed deals with federal and state regulators to buy back more than $50 billion worth of auction-rate securities. The regulators alleged that the banks misled customers into believing that the investments were safe.


The New York Sun

© 2024 The New York Sun Company, LLC. All rights reserved.

Use of this site constitutes acceptance of our Terms of Use and Privacy Policy. The material on this site is protected by copyright law and may not be reproduced, distributed, transmitted, cached or otherwise used.

The New York Sun

Sign in or  Create a free account

By continuing you agree to our Privacy Policy and Terms of Use