Broker In Auction-Rate Securities Scandal Missing
A former Credit Suisse broker who is the target of a federal investigation into an auction-rate securities scam has been declared missing and likely left the United States for his home in Bulgaria.
Bulgarian-born Julian Tzolov and Eric Butler are two former Credit Suisse brokers accused of lying to investors about how they invested their money in auction-rate securities. The two men resigned from Credit Suisse on Sept. 7, 2007.
In other auction-rate securities news, UBS has agreed to pay Massachusetts $4.4 million as part of a settlement involving allegations by the state that it misrepresented the securities to municipalities.
Massachusetts securities regulators launched an investigation into UBS and its marketing practices of auction-rate securities in February, following complaints that the Swiss-based bank had deceived clients when it sold them the securities.
Of the $4.4 million settlement, $1 million will go toward state fees and to educate government officials about appropriate investments for their money.
The remaining funds will allow Massachusetts cities and agencies to redeem the full value of their securities from UBS, according to Massachusetts Attorney General Martha Coakley.
The $4.4 million settlement now brings the total amount that UBS has paid to Massachusetts over its mishandling of auction-rate securities to $41.3 million, following a $37 million partial settlement that the bank agreed to in May.
Meanwhile, Texas is now on the trail of UBS. The securities board in the Lone Star State is considering barring the bank from doing business in Texas, in which UBS’ wealth management unit has approximately $65 billion in assets under management.
Auction-rate securities are municipal bonds, corporate bonds, and preferred stocks in which interest rates or dividend yields reset through auctions held every seven, 14, 28, or 35 days. In February 2008, Wall Street investment banks and securities firms pulled out of the auction market, thereby setting off a chain reaction of auction failures.
As a result, thousands of investors have been left in limbo. Initially sold on auction-rate securities because of their supposed cash-like nature, they now find themselves holding illiquid investments.
Many investors have since taken their frustration out in court. According to a study by NERA Economic Consulting, a New York economic-consulting group, shareholder class-action filings have risen substantially in 2008, and expected to reach a 42% increase by year end - the largest annual rise since 2002.
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