Criminal ARS Pushers Will Get To Keep Bonuses, Says FINRA

Sure, that sounds totally logical to me.


Former brokers Eric Butler and Julian Tzolov won't have to return the $4.45 million that Morgan Stanley lent to each of them as a signing bonus three years ago, according to a ruling by the Financial Industry Regulatory Authority.

The two men won the arbitration battle a year after Mr. Butler was convicted of, and Mr. Tzolov pleaded guilty to, several counts of securities fraud.

When brokers move to a new firm they receive a bonus that is often equal to roughly twice the revenue they generated over the past year at their prior firm. These bonuses are in the form of loans secured by promissory notes, meaning brokers have to pay back the loan balance if they leave before the note expires several years later.

Said the SEC when they first came down on their asses in September of 2008:

Julian Tzolov and Eric Butler misled customers into believing that auction rate securities being purchased in their accounts were backed by federally guaranteed student loans and were a safe and liquid alternative to bank deposits or money market funds. Instead, the securities that Tzolov and Butler purchased for their customers were backed by subprime mortgages, collateralized debt obligations (CDOs), and other non-student loan collateral.

"As alleged in our complaint, these two brokers foisted more than $1 billion in subprime-related securities upon unsuspecting customers to illegally obtain higher commissions from their sales," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. "As always, if you commit fraud, you can expect to be held accountable by the SEC. The Enforcement Division's vigilance extends throughout our financial markets, including the subprime lending and credit markets."

Jake Zamansky details the SEC complaint here. The two deleted references to the awful mortgages tied up with them and put in words like "St. Loan" to make it appear as though the securities were based on education loans.

JZ goes on:

Clearly this is an extreme example of the abuse that went on in the auction rate securities market, but the case of Eric Bulter and Julian Tzolov is not as unusual as it may seem in my opinion. The fact that two brokers in the prime of their careers earning more money than most Americans would so overtly violate securities laws, in my mind, shows that they thought the ARSs would traditionally be repurchased in short order by a Wall Street firm given they were propping up the entire market.

The ARS market completely seized up 7 months earlier so it appears obvious that most of it was made up of crap like this, they just happened to be bad enough at it to get caught.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.