Wednesday, September 03, 2008 2:59:40 PM
2 brokers accused of $1B subprime fraud
Wednesday September 3, 1:36 pm ET
By Marcy Gordon, AP Business Writer
Federal prosecutors, SEC accuse 2 Wall Street brokers of $1 billion subprime securities fraud
WASHINGTON (AP) -- Federal prosecutors and regulators on Wednesday accused two former Wall Street brokers of defrauding customers by making more than $1 billion in unauthorized purchases of securities tied to subprime mortgages.
In an indictment unsealed in federal court in Brooklyn, N.Y., the two former Credit Suisse Securities brokers were charged with deceiving customers in a bid to pump up their sales commissions. The charges against Julian Tzolov, 35, and Eric Butler, 36, were announced by U.S. Attorney Benton Campbell in Brooklyn.
They are charged with securities fraud, wire fraud and conspiracy, carrying maximum total sentences of 25 years and up to $5.25 million in criminal fines. Give them the max!!!!
The Securities and Exchange Commission filed a related civil lawsuit in federal court in Manhattan, alleging that Tzolov and Butler 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 is seeking unspecified restitution and civil fines against the brokers, who were suspended by Credit Suisse last year.
The securities actually were backed by subprime mortgages, collateralized debt obligations and other high-risk investments, the authorities said. Because of their higher risk, they brought a higher yield and much larger commissions for the brokers.
Attorneys representing Tzolov and Butler didn't immediately return telephone calls seeking comment Wednesday 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.
Andrew Calamari, associate director of the SEC's New York regional office, said the case shows "how the recent turmoil in the subprime market has affected even investors who had no intention of buying subprime securities."
The authorities said 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.
http://biz.yahoo.com/ap/080903/sec_subprime_charges.html?.v=8&printer=1
Wednesday September 3, 1:36 pm ET
By Marcy Gordon, AP Business Writer
Federal prosecutors, SEC accuse 2 Wall Street brokers of $1 billion subprime securities fraud
WASHINGTON (AP) -- Federal prosecutors and regulators on Wednesday accused two former Wall Street brokers of defrauding customers by making more than $1 billion in unauthorized purchases of securities tied to subprime mortgages.
In an indictment unsealed in federal court in Brooklyn, N.Y., the two former Credit Suisse Securities brokers were charged with deceiving customers in a bid to pump up their sales commissions. The charges against Julian Tzolov, 35, and Eric Butler, 36, were announced by U.S. Attorney Benton Campbell in Brooklyn.
They are charged with securities fraud, wire fraud and conspiracy, carrying maximum total sentences of 25 years and up to $5.25 million in criminal fines. Give them the max!!!!
The Securities and Exchange Commission filed a related civil lawsuit in federal court in Manhattan, alleging that Tzolov and Butler 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 is seeking unspecified restitution and civil fines against the brokers, who were suspended by Credit Suisse last year.
The securities actually were backed by subprime mortgages, collateralized debt obligations and other high-risk investments, the authorities said. Because of their higher risk, they brought a higher yield and much larger commissions for the brokers.
Attorneys representing Tzolov and Butler didn't immediately return telephone calls seeking comment Wednesday 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.
Andrew Calamari, associate director of the SEC's New York regional office, said the case shows "how the recent turmoil in the subprime market has affected even investors who had no intention of buying subprime securities."
The authorities said 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.
http://biz.yahoo.com/ap/080903/sec_subprime_charges.html?.v=8&printer=1
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