SEC Fraud

It’s a rough day for two former Credit Suisse brokers – Julian Tzolov and Eric Butler. They were indicted for conspiracy, securities fraud, and wire fraud in a scheme to “obtain higher sales commissions” by selling auction rate securities disguised as bonds backed by student loans. They essentially tried to sell risky mortgage-backed securities as low-risk bonds that were backed by student loans for nearly three years. Credit Suisse, to their credit, noticed “improper activity,” suspended them, and contacted the authorities. The count of securities fraud and two counts of wire fraud carry a max sentence of twenty years in prison and a $5M fine. The conspiracy count carries a max prison sentence of five years and a $250,000 fine.

To add insult to injury, the Securities and Exchange Commission tacked on a civil fraud complaint for their trouble. The two went as far as telling sales assistants to send email confirmations with the terms “St. Loan” (for student loan) and “Education” tacked onto the names of their securities, to make them seem more like they were backed by safe student loans and not subprime mortgages.

2 ex-Credit Suisse brokers charged in bln-dlr subprime fraud [AP]