Ex-broker Tzolov pleads guilty in NY to fraud

Former Credit Suisse broker Julian Tzolov, a native of Bulgaria, is seen in F.B.I. custody after he was arrested at New York's John F. Kennedy International Airport and taken to FBI offices in Manhattan September 4, 2008.

NEW YORK (Reuters) - A former Credit Suisse Group AG broker pleaded guilty on Wednesday to fraud charges stemming from auction-rate securities purchases for clients, one of the first prosecutions arising from the credit crunch.

Julian Tzolov, 36, also pleaded guilty to bail jumping, two days after being escorted by FBI agents back to the United States from Spain.

He had fled in May from house arrest in his New York apartment and was caught last week in the coastal city of Marbella using false identification and accompanied by bodyguards

"I panicked, Your Honor. I got scared," Tzolov, dressed in jail-issued dark blue shirt and light brown pants, said at a plea hearing in U.S. District Court in Brooklyn.

"With respect to my criminal conduct, I knew my actions were against the law," he told Judge Jack Weinstein. "I accept responsibility and I am sorry for my actions."

Tzolov and former Credit Suisse colleague Eric Butler were indicted last September for fraudulently dealing in $1 billion worth of subprime mortgage-backed auction rate securities (ARS) for corporate clients who had ordered safer investments of government-guaranteed student loans.

Butler has pleaded not guilty. Jury selection for his trial started on Wednesday.

Assistant U.S. Attorney Greg Andres said in court there is a possibility that Tzolov will serve as a trial witness.

Tzolov could get up to 20 years in prison on each of the charges of securities fraud, wire fraud and conspiracy he faces. He could be sentenced to up to 10 more years for bail jumping.

Sentencing is set for October 27.

Tzolov, a Bulgarian national, also pleaded guilty to a charge of visa fraud for illegally obtaining and using a U.S. permanent residence card from October 2005 until his indictment in September 2008.

The $330 billion ARS market collapsed in February 2008. The Credit Suisse clients lost their money with the failure of the market for mortgage-backed ARS, debt reset at periodic auctions which had been touted as a safe, cash equivalent.

Tzolov told the judge that he and Butler sent emails to six companies in Canada, Britain, Switzerland, Bermuda and Panama, falsifying the names and nature of the securities to mislead Credit Suisse clients.

Credit Suisse has said that Tzolov and Butler resigned in 2007 after the firm suspended them for "prohibited activity." The firm said it cooperated with authorities in the matter.

The case is USA vs Tzolov and Butler 08-370 in U.S. District Court for the Eastern District of New York (Brooklyn).

(Reporting by Grant McCool, editing by Maureen Bavdek, Derek Caney, Tim Dobbyn)