City A.M. Reporter
A FORMER Credit Suisse broker testified yesterday that he and his former business partner lied to corporate clients and sent them incorrect information in emails to cover up investments in risky debt.<br /><br />In one of the first criminal prosecutions stemming from the credit crunch to go to trial, former broker Julian Tzolov told a jury that he and another broker, Eric Butler, told clients their securities were backed by government-guaranteed student loans, when in fact they were not.<br /><br />“We were doing it for two reasons: We were receiving higher commissions and couldn’t get allocations on student loans,” said Tzolov, seated in Brooklyn federal court two weeks after pleading guilty to securities fraud, wire fraud, conspiracy and bail jumping. <br /><br />Tzolov, 36, was called by the government as a witness in the trial of his onetime friend and business partner Butler, who has pleaded not guilty to an indictment of fraud in $1bn (£597m) worth of deals in mortgage-backed auction rate securities from 2004 to 2007.<br /><br />Butler’s trial started on 23 July and Tzolov is detained awaiting sentencing. He pleaded guilty after he was arrested in Spain days before the trial.<br /><br />In May, Tzolov fled house arrest in his New York apartment and was declared a fugitive. A Bulgarian national, Tzolov also pleaded guilty last month to fraudulently obtaining a US permanent residence card.<br /><br />“We sent incorrect, untrue emails to clients with incorrect terms of securities,” Tzolov said under questioning by prosecutor Greg Andres about how he and Butler covered up the fraud to clients. Tzolov said he and Butler changed some words to avoid ringing alarm bells with clients.