Ex-Credit Suisse brokers charged in $1B scam

Two former Credit Suisse brokers were charged today with defrauding their customers by making more than $1 billion in unauthorized purchases of subprime-related auction rate securities. In a complaint filed in U.S. District Court for the Southern District of New York in Manhattan, the Securities and Exchange Commission charged 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, liquid alternative to bank deposits or money market funds. Instead, the securities purchased were backed by subprime mortgages, collateralized debt obligations and other non-student loan collateral, the SEC said. “These two brokers foisted more than $1 billion in subprime-related securities upon unsuspecting customers to illegally obtain higher commissions from their sales,” SEC Division of Enforcement director Linda Chatman Thomsen said in a statement. The case “demonstrates how the recent turmoil in the subprime market has affected even investors who had no intention of buying subprime securities,” SEC New York regional office associate director Andrew Calamari said in the release. The brokers, who were employed at Credit Suisse Securities (USA) LLC in New York, deceived foreign corporate customers in short-term cash management accounts. The employees resigned in September 2007 after Credit Suisse “detected their prohibited activity and promptly suspended them,” Credit Suisse spokesman David Walker wrote in an e-mail. “Credit Suisse immediately informed our regulators and we have continued to assist the authorities,” he wrote. Attorneys representing the two brokers were not immediately available for comment.