UPDATE 2-Plea hearing and trial set in NY for ex-CS brokers

* Pair charged over auction rate securities

* Separate court appearances scheduled (Adds Credit Suisse statement)

By Grant McCool

NEW YORK, July 21 (Reuters) - An indicted former Credit Suisse Group AG (CSGN.VX)(CS.N) broker who fled the United States and was caught in Spain, could be preparing to plead guilty, according to a court document.

The defendant, Julian Tzolov, and his former colleague Eric Butler, were indicted in New York last year in one of the first criminal prosecutions stemming from the 2007 credit crunch. They are charged with fraudulently selling $1 billion worth of mortgage-backed auction rate securities (ARS) to corporate clients.

Tzolov, escorted by FBI agents back to the United States on Monday, was scheduled to appear Wednesday for a "Criminal Cause For Pleading," according to the calendar for the U.S. District Court in Brooklyn.

His lawyer, Benjamin Brafman, declined to answer questions about his client's options and said in an email that a "decision will be made tomorrow morning."

A spokesman for the office of the federal prosecutor for Brooklyn declined to comment.

ARS are long-term debts whose rates are set at periodic auctions. The credit crisis put increasing pressure on the $330 billion market until it froze in February 2008, leaving investors saddled with securities they could not sell.

Jury selection in the trial of Butler, which was postponed by presiding Judge Jack Weinstein on Monday because Tzolov was being brought back after two months on the run, will start on Wednesday [ID:nN20500252].

Both Butler, 37, and Tzolov, 36, pleaded not guilty in September to charges of securities fraud, conspiracy to commit securities fraud and conspiracy to commit wire fraud. The government has said all along it wanted to put the men on trial together.

They were both released on bail secured by millions of dollars in property, but Tzolov fled house arrest and electronic monitoring in May.

Their former employer said in a statement on Tuesday that it continued to help U.S. prosecutors with the case.

"In 2007, we informed our regulators of these individuals' activities," CS said. "We have and will continue to assist the authorities in their work."

Tzolov, a Bulgarian national, has also been charged with jumping bail and illegally obtaining a U.S. permanent residence card. Tzolov is in custody and his attorney agreed on Tuesday to the judge revoking his bail.

The former colleagues, who helped run a cash management unit for Credit Suisse corporate clients until they left in September 2007, are accused of fraudulently trying to earn commissions worth millions of dollars by purchasing $1 billion of risky ARS for client accounts and not telling the clients. The ARS were collateralized by subprime mortgages, not the government-backed student loans ordered by the clients, prosecutors said.

The case is USA v Tzolov and Butler 08-370 in U.S. District Court for the Eastern District of New York (Brooklyn). (Reporting by Grant McCool; editing by Andre Grenon)