Brokers Facing Life in Jail:
Eric Butler, a 37-year old former Credit Suisse broker, was convicted in August of fraudulently selling hundreds of millions of dollars in subprime securities to corporate clients in order to generate excess commissions. Convicted of conspiracy to commit securities fraud, securities fraud and conspiracy to commit wire fraud, Butler faces a maximum sentence of 45 years in prison, according to prosecutors.
Butler and fellow Credit Suisse broker, 36-year old Julian Tzolov, were indicted in 2008 for falsely telling corporate clients of the firm's private banking division that the auction rate securities (ARS) in which they had invested $1 billion were backed by federally guaranteed student loans and a safe alternative to cash. They were actually backed by collateralized debt obligations (CDOs) and other mortgage backed securities including ones linked to subprime mortgages, which paid the two brokers far juicier commissions. Commissions for the sale of auction rate securities generally sit between 5 and 10 basis points for student loan backed ARS, according to reports, but can get as high as 12.5 basis points for CDO-backed securities.
Tzolov fled the country in May and was captured in July in Spain where he was found traveling with false documentation and bodyguards. Since returning Tzolov pleaded guilty to multiple charges related to the fraud has flipped for the prosecution, testifying as a government witness that he and Butler defrauded clients together. Sentencing for the two men will take place in October.
An administrative law judge will hold a hearing to determine if the SEC's allegations against James Dawson, a 63-year old investment advisor, are true and what action should be taken. The SEC's complaint alleges that Dawson, who is the investment advisor to individual clients and a hedge fund, Victoria Investors, cherry-picked profitable trades for his personal accounts and allocated losing trades to his advisory clients. It further alleged that between April 2003 and October 2005, Dawson allocated approximately 400 trades to his personal account, approximately 393 of which were profitable on the first day, for a success rate of approximately 98.3 percent. In contrast, Dawson allocated approximately 2,880 trades to his hedge fund and individual client accounts, approximately 1,489 of which were profitable on the first day, for a success rate of approximately 51.7 percent. The Commission's complaint also alleged that, between 2003 and 2005, Dawson used Victoria Investors' funds to pay for personal and family expenses.