Securities Law Blog

I am consistently struck by the stupidity of the criminal—in this instance, like so many others-I have to ask “did they really think they wouldn’t get caught”?....The SEC charged two Wall Street brokers on September 3, 2008 with defrauding their customers when making more than $1 billion in purchases of subprime-related auction rate securities. The SEC alleges that Julian Tzolov and Eric Butler misled customers into believing that auction rate securities being purchased in their accounts were backed by federally guaranteed student loans and were a safe and liquid alternative to bank deposits or money market funds. Instead, the securities that Tzolov and Butler purchased for their customers were backed by subprime mortgages, collateralized debt obligations (CDOs), and other non-student loan collateral.

The SEC's Complaint, filed in federal court in Manhattan, alleges that Tzolov and Butler, while employed at Credit Suisse Securities (USA) LLC in New York, deceived foreign corporate customers in short-term cash management accounts by sending or directing their sales assistants to send e-mail confirmations in which the terms "St. Loan" or "Education" were added to the names of non-student loan securities purchased for the customers. Tzolov and Butler also routinely deleted references to "CDO" or "Mortgage" from the names of the securities in these e-mails. As a result, the complaint alleges that customers were stuck holding more than $800 million in illiquid securities after auctions for auction rate securities began to fail in August 2007.

For more information on this subject contact securities attorneys, Michaels, Ward & Rabinovitz, LLP.