In the first case of its kind, the SEC announced today that it has charged two individual financial advisors with fraud related to the sale of more than $1 billion in auction-rate securities.

The two defendants, New York-based Credit Suisse financial advisors Julian Tzolov and Eric Butler, are charged with defrauding their customers in making more than $1 billion in unauthorized sub-prime related auction-rate securities (ARS) purchases.

The SEC alleges the men misled customers by telling them the ARS purchased for their accounts were backed by federally guaranteed student loans, and were thus safe and liquid. Instead, the securities Tzolov and Butler purchased for their clients were backed by sub-prime mortgages, CDOs and other non-student loan collateral. (Read the SEC release and complaint here.) The complaint says the defendants bought the securities and, in email confirmations of the purchases sent to clients, changed the names of the securities. The government says the reps added words such as, “St. Loan” and “Education,” while removing words such as “CDO and “Mortgage” from the names of the investments. The riskier ARS vehicles paid higher commissions than the federally backed student loan debt the clients had authorized them to buy, the complaint says.

Clients have filed complaints with FINRA against the brokerages, charging them with misrepresenting ARS securities’ liquidity risk. Class-action attorneys have certainly been busy pursuing the b/ds, but, until this announcement, individual financial advisors have largely escaped charges from regulators of intentional wrongdoing in regard to sales of ARS.

Of course, this case is different in that the individual reps are being charged with fraud. Until now, individual retail advisors were portrayed as victims, intentionally misled or misinformed by their firms, or so the story goes; the advisors were following firm guidance. And the evidence thus far has been supportive of that line of thinking: In the case of Merrill Lynch, the attractiveness of certain ARS was touted up until only a few days before the market collapsed. In June, according to a story in the Wall Street Journal, former UBS Senior Vice President Timothy Flynn filed a complaint with the Labor Department alleging he was fired by his firm after he told Massachusetts investigators UBS financial advisors hadn’t been informed of liquidity problems in the ARS marketplace.

Many of these large firms, including Merrill Lynch, Citigroup, Morgan Stanley, UBS and Wachovia, have since settled charges brought by state and federal regulators in the past two months, agreeing to buy out retail clients’ ARS holdings.