"Cuomo has become 'a second SEC', or Securities and Exchange Commssion, says Columbia Law professor John Coffee, 'in cases in which the SEC has been strangely slow'," Barron's, 1 September 2008.
"A former Credit Suisse Group broker pleaded not guilty to charges he and another broker misled investors about purchases of auction-rate securities. Julian Tzolov, through his attorney, entered his plea Friday before a U.S. Magistrate in Brooklyn, N.Y. ... Prosecutors allege the two engaged in a plan to get higher commissions by approaching clients about buying auction-rate securities backed by student loans, but used clients' funds to buy more risky debt securities. The [SEC], in a separate civil lawsuit, alleged Messrs. [Eric] Butler and Tzlov made more than $1 billion in unauthorized purchases of auction-rate securities for the accounts of their corporate clients", Chad Bray at the WSJ, 8 September 2008.
"In July, Anotolio Pellizzetti, a 70-year old retired physician in Tavernier, Fla., filed an aribitration claim accussing UBS AG's wealth-mangement unit of fraud in selling him $2.5 million of auction-rate securities. ... [O]ne feature of this litigation stands out: Mr. Pellizzetti was referred to an attorney by his son--a former UBS broker who first sold his father the securities. ... Now, in the latest twist of the roiled credit markets, some brokers are siding with customers who allege that the securities weren't as billed. ... In the wake of all this, a behind-the-scenes debate is unfolding about the role played by brokers. Even as the auction market burgeoned to $330 billion in recent years, many brokers knew little about its inner workings, according to regulatory documents, lawsuits and interviews with brokers and their clients. ... Brian McNiff, a spokesman for Massachusetts Secretary of State William Galvin, notes that the state opted to file civil-fraud suits against units of UBS and Merrill Lynch & Co., not their financial advisers. ...UBS and Merrill Lynch have both settled their complaints with Massachusetts and other regulators without admitting or denying wrongdoing. ... Brokers are caught in the middle because the auction market was both obscure and complex--but filled a need for their clients at a time when money-market funds offered often-paltry returns. In short, an auction-rate security is a form of debt that pays a short-term interest rate that is reset periodically. ... According to a complaint filed by New York's attorney general [Andrew Cuomo] against two UBS units, which the company settled in August without admitting or denying wrongdoing, the firm's financial advisers, 'readily admit that they represented auction-rate securities to be cash equivalents, as that was their understanding.' Many UBS brokers, the complaint says, 'did not even have the most basic understanding of how auction-rate securities worked until; after UBS determined not to participate in auctions of Feb. 13, 2008.' ... [T]he Massachusetts complaint ... [said UBS] 'was providing its sales force, and consequently its customers, with half-truths about the mature of' the auction market during the fall of 2007 and early this year", Daisy Maxey at the WSJ, 8 September 2008.
It sould be nice if Chris Cox would ask himself why a "second SEC" is necessary. What's wrong with the SEC he heads?
I doubt Butler & Tzolov (B&T) did this without their Credit Suisse supervisors knowledge. This sounds like another Joe Jett fiasco and B&T are the designated scapegoats.
Compare the Feds' treatment of brokers with that of the state regulators.
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