Ex-Credit Suisse Broker Who Pleaded Guilty to Securities Fraud for Role in Auction-Rate Securities Scam Knew in Late 2007 that Clients’ Funds Were in Trouble

Julian T. Tzolov, a former Credit Suisse Securities (USA) LLC broker, has pleaded guilty to fraud charges over his involvement in an auction-rate securities scheme involving hundreds of millions of dollars. Tzolov, 36, is accused taking investor funds and placing them in high-risk ARS rather than government-backed conservative instruments.

In April, Tzolov was charged with wire fraud, conspiracy to commit securities fraud, and securities fraud. Tzolov and another man, Eric Butler, are accused of as early as November 2003 soliciting funds from companies to invest in ARS. Tzolov allegedly told potential clients that he would be investing their money in government-backed ARS. Instead, the former Credit Suisse broker placed the investors’ money in ARS that were connected to riskier, collateralized debt obligations. He is also accused of falsifying the names of products that investors bought to make it look as if they were purchasing conservative instruments, rather than CDO-ARS.

When the CDO-ARS market fell in late 2007, Tzolov was unable to sell the securities and repay clients who were demanding their returns. This incident is further evidence that broker-dealers and brokers knew before February 2008 that investors and their money were in trouble.

Tzlolov’s conviction is the first one connected to the ARS market. His sentencing is scheduled for October. Tzolov was captured earlier this month after he fled the US in May while under house arrest. He could end up serving 20 years in prison for each fraud count.

Ex-Broker Pleads in Auction-Rate Case, WSJ, July 23, 2009
Julian Tzolov, Ex-Credit Suisse Broker, Target Of International Manhunt, The Huffington Post, June 5, 2009
Our securities fraud lawyers are continuing to pursue claims for our clients that lost money when the ARS market collapsed. Contact Shepherd Smith Edwards & Kantas, LLP today.