This story has been updated.
Sometimes great things happen to bad people.
Two ex-brokers convicted of securities fraud have been allowed to keep the $4.45 million signing bonuses granted to them by Morgan Stanley when they joined three years ago, the Wall Street Journal reports.
The controversial ruling was administered by the Financial Industry Regulatory Authority (FINRA).
Last year, Julian Tzolov and Eric Butler were charged with fraud for selling more than $1 billion worth of subprime-related securities during a 2003-2007 stint at Credit Suisse. In 2007, Morgan Stanley poached what they thought were two star brokers from Credit Suisse, giving each a $4.45 million signing bonus. They were suspended a year later when the SEC indicted both men for fraud (Tzolov and Butler retired soon after).
In August 2008 , Morgan Stanley filed a claim with FINRA requesting that the signing bonuses be returned.
As the WSJ notes, during the pre-financial crisis era, banks typically gave signing bonuses in the form of promissory loans worth twice as much as they made the year before. However, employers are usually forced to return the loans if they leave too early.
Which is why the FINRA ruling comes as a surprise. Morgan Stanley spokeswoman Christine Pollack said, "We are obviously disappointed with the result, but the fact of the matter is that once the arbitration panel rules, there are not many other options for us to pursue." (h/t Bloomberg).
Last year Tzolov, 37, was the target of an international manhunt when he fled the United States after his conviction. The fugitive was found in Spain and handed back to U.S. authorities.
After his return Tzolov pleaded guilty to conspiracy, wire fraud and securities fraud, and testified against his former partner. Butler, 39, was convicted of securities fraud and sentenced to five years in jail, which he has appealed. Tzolov faces life imprisonment.
Update: This story corrects a previous version that said Julian Tzolov is from Spain. He is from Bulgaria.
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