Fugitive ex-Credit Suisse trader arrested

NEW YORK (Reuters) - An indicted former Credit Suisse Group AG trader was arrested in Spain on Wednesday, U.S. law enforcement sources said, two months after he fled facing trial on fraud charges.

Bulgarian national Julian Tzolov, 36, was charged last September along with another former CS trader Eric Butler, with fraudulently selling $1 billion worth of mortgage-backed auction-rate securities to clients.

Tzolov was arrested by police in Spain, but no further details were immediately available according to two law enforcement sources. They asked not to be identified because details of the ex-trader's return were still to be worked out by authorities.

In a letter filed in court, the U.S. Attorney for the Eastern District of New York, Benton Campbell, said "the government writes to inform the court that the defendant (and fugitive) Julian Tzolov has been apprehended."

The letter to presiding Judge Jack Weinstein gave no other details. A trial was set to start on July 20 in Brooklyn federal court for Butler, 37, and Tzolov, but it was unclear whether it would go ahead as scheduled.

The judge is hearing a previously scheduled pretrial argument on Thursday and more information may be revealed then.

FUGITIVE SINCE MAY

The arrest of Tzolov, who escaped on May 9 from house arrest and electronic monitoring in his New York apartment, came as a new indictment was unsealed against him and his former colleague.

The indictment was unsealed in Manhattan, a different federal court district than the scheduled trial.

The new indictment accuses the former traders of 14 counts of wire fraud, citing emails they sent to six unidentified companies in Canada, Britain, Switzerland, Bermuda and Panama "in the furtherance of the scheme" between February 2005 and July 2007.

Butler and Tzolov were originally charged in September with conspiracy to commit securities fraud and wire fraud. They pleaded not guilty to the charges. Their trial was originally scheduled for June 29 and postponed when Tzolov fled.

Prosecutors alleged that from November 2004 to September 2007 Butler and Tzolov tried to obtain higher sales commissions by selling auction rate securities (ARS) backed by risky subprime mortgages to Credit Suisse clients, when the clients had ordered ARS backed by government-guaranteed student loans.

The clients lost their money with the failure of the market for mortgage-backed ARS, debt reset at periodic auctions which had been touted as safe and the equivalent of cash.

Tzolov's lawyer, Benjamin Brafman declined, comment and Butler's attorney issued a statement.

"Against Eric Butler, it appears that the government has brought an identical case in a different district to try to give themselves two chances to win a case that they should not have brought once," lawyer Paul Weinstein said.

Separately on Wednesday, prosecutors in Brooklyn said they had charged Tzolov with jumping bail and also visa fraud for unlawfully obtaining a U.S. permanent residence card.

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 Matthew Lewis)