FraudulentCharges.com

Ex-Broker Pleads Guilty in Fraud Case

NEW YORK — Ex-Credit Suisse Group broker Julian Tzolov, who disappeared in May and returned to the U.S. after being a fugitive for more than a month, pleaded guilty Wednesday to criminal charges in a scheme involving auction-rate securities.

Mr. Tzolov pleaded guilty to three indictments at a hearing before U.S. District Judge Jack Weinstein in Brooklyn, including charges of conspiracy, securities fraud, bail-jumping, visa fraud and multiple counts of wire fraud.

“With respect to all of my criminal conduct, I knew at the time that my actions were in violation of the law. I knew they were wrong,” Mr. Tzolov said. “I am truly sorry for my conduct.”

Sentencing is set for Oct. 27. Mr. Tzolov, 36 years old, faces a maximum of 20 years in prison on each fraud count and federal sentencing guidelines call for a life sentence. He will be deported after he completes his sentence.

Mr. Tzolov, a native of Bulgaria, was under house arrest and subject to electronic monitoring when he disappeared from his apartment in New York in May. Prosecutors declared him a fugitive in June.

He was arrested in Marbella, Spain, by Spanish national police last week and waived extradition Friday. He returned to New York on Monday in the custody of agents from the Federal Bureau of Investigation.

“I panicked, Your Honor,” Mr. Tzolov said when asked why he fled. “I got scared.”

The plea came on the same day the criminal trial was scheduled to begin against Mr. Tzolov and Eric Butler, both formerly of Credit Suisse Securities (USA) LLC.

Jury selection will begin shortly in Mr. Butler’s case.

Messrs. Tzolov and Butler have been accused of engaging in an alleged fraudulent scheme to obtain higher commissions by selling clients higher-risk auction-rate securities backed by mortgages, when those clients wanted to buy lower-risk securities backed by student loans.

Assistant U.S. Attorney Greg Andres said the investor losses from the scheme are believed to exceed $400 million.

Mr. Andres said his office had discussions about Mr. Tzolov possibly cooperating and testifying at Mr. Butler’s trial, but no agreement had been reached.

Benjamin Brafman, Mr. Tzolov’s lawyer, said there was no agreement in place.

Discussions about a possible plea agreement are ongoing.

During his plea, Mr. Tzolov implicated Mr. Butler, saying they made statements “which mislead or were intended to mislead clients about the nature of the securities purchased on their behalf.”

“Eric Butler and I told clients we would only purchase auction-rate securities backed by student loans, when we did buy securities not backed by student loans,” Mr. Tzolov said.

Mr. Butler, 37, is separately facing charges in Brooklyn of conspiracy to commit securities fraud, securities fraud and conspiracy to commit wire fraud. He has denied wrongdoing.

Last week, Mr. Butler also was charged with multiple counts of wire fraud in a separate judicial district in Manhattan. Lawyers from the U.S. Attorney’s office in Brooklyn are prosecuting both cases.

The schemes unraveled in August 2007, when the market for mortgage-backed collateralized-debt obligations collapsed and various auctions for CDO-auction-rate securities began to fail, resulting in the defendants being unable to liquidate their clients’ investments and return their money, prosecutors said.

Auction-rate securities are debt instruments whose interest rates are reset periodically at daily, weekly or monthly auctions.

In a statement Tuesday, Credit Suisse said, “In 2007, we informed our regulators of these individuals’ activities. We have and will continue to assist the authorities in their work.”

Write to Chad Bray at chad.bray@dowjones.com