Julian Tzolov, Eric Butle, Ex-Morgan Stanley Traders Convicted Of Fraud, Will KEEP Bonuses

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.

Comments

[lvdragonlady]

12:30 AM on 08/16/2010

There needs to be LAWS to keep this kind of thing from happening BUT we all know that the GOP would never allow laws like this because THEY are in the pockets of big business, along with some democrats.

[wackycathy]

08:00 PM on 08/15/2010

The fact that these brokers won the arbitration against Morgan Stanley is really more indicative of what a bunch of baloney the case against them was. As someone who used to be a broker for Charles Schwab (I've since moved on), I know firsthand how brokers were taught to market these securities. They were not told "hey these things are going to be worthless, so let's try to get over on these suckers, they were told that they were safe liquid and infallible, likened and accepted market wide as money market instruments.
Many of you assumed that of course the brokers would win becasue finra is corrupt and they always side with finance blah blah blah, which is true, It has been virtually impossible for one of the big banks to lose an arbitration. So what this win really says is that outside the courtroom in what I consider the more sane world of arbitration (think about OJ simpson and tell me jurys always make sense) these brokers were able to prove that they are not criminals. As someone said bad advice givers but premeditated criminals? If giving bad advice or making a mistake at work make someone a criminal then all of us in positions where we depend on information to market products,doctors, salesmen should be really scared.

[Lotus19]

11:33 PM on 08/15/2010

How did they prove they were not criminals when one of the guys pleaded guilty to conspiracy, wire fraud and securities fraud. What innocent person does that when they are facing life imprisonment? I can see where it is plausible that some brokers believed that certain transactions were safe and legit, but that doesn't necessarily make that the case in this situation.

[Lotus19]

12:27 AM on 08/16/2010

Correction...the FINRA ruling has nothing to do with their guilt or innocence related to the crimes they were accused of. The ruling speaks to the whether they were legitimately entitled to the monies from Morgan. Although they didn't provide the reason for their ruling, I suppose if you and others are going to speculate that they ruled the way they did because of their innocence, others can speculate on other reasons for the ruling.

[wackycathy]

06:54 PM on 08/16/2010

jjj

[TheKurgan]

10:38 AM on 08/15/2010

Typical. *sigh* The government should confiscate the 4.45 million and do something useful with it. Hey, I know! Give it to the investors who were hurt by the fraud! Simple!

[Loveismreligion]

10:50 PM on 08/14/2010

Anyone?

[Loveismreligion]

10:50 PM on 08/14/2010

I want to the corporations in prison not some fall guys...

How do you arrest a corporation?

[TheKurgan]

10:37 AM on 08/15/2010

You nationalize it, fire/imprison everyone, take all the assets, liquidate them, and inject the money into the economy as a check for every wage earner.

[sloreader]

11:01 PM on 08/15/2010

They want to be people so their leadership should be prosecuted like people. Think I'm wrong? See the recent Citizens United case by your Supreme Court.

[funkalicious]

06:15 PM on 08/14/2010

It may be a very good idea to post these thieves personal financial information on the web social security numbers and the like then let the thieves have at them. Im certain that a few hundered credit card attacks could bankrupt them.

[1Houligan]

04:39 PM on 08/14/2010

So one is awarded for wrongdoing? Imagine that!

[Tiggy]

01:06 PM on 08/14/2010

what's a record when you never have to work again! Talk about consequences or lack there! No wonder we have so many crooks out there, crime really does pay.

[Tiggy]

01:50 AM on 08/14/2010

In the world of Wall Street, Crime does pay...lol

[Stephan Stephan]

12:52 AM on 08/14/2010

Goshorn it sounds like you have a vested interest here, yet you don't seem to understand much. You used the word "steal". This case is not about stealing money from anyone... It's about brokers being accused of selling one triple A rated security instead of another triple A rated security. The interesting thing is that every Auction has met the same fate. They are all frozen.

[Stephan Stephan]

11:28 PM on 08/13/2010

Poor Morgan Stanley? It's easy to blame and prosecute a broker at the bottom of the totem pole. It's dificult to go after the banks that created this product. These banks hired brokers and told them to sell auction rate notes as cash. These are brokers, not the "wall street" minds that create these complicated products. My broker sold ARS to me and all he knew was that they were triple A rated and that I could get my money back in a month. At the time, that was good enough for me and everyone else. The US treasury note is rated triple A. Are you telling me that a broker was supposed to know that the ratings agencies were assigning faulty ratings in order to get more business? How can you sell someone something that is rated the best in the world and be defrauding them? Sorry Morgan , you are to blame here. You wanted to hire brokers that were doing a great job at selling ARS and when the ARS market evaporated, you wanted your money back. I forgot, Morgan is one of the reasons this market collapsed. The banks supported this market for 25 years and suddenly stopped supporting it and investors couldn't get access to their money. What did MS think was going to happen after they stopped their support. I think these guys got hit with a huge fine so I doubt they have any of this money. This article is MOOT. DUH.

[Lotus19]

12:20 AM on 08/16/2010

Morgan didn't want their money back because the market evaporated. They wanted their money back because the two were suspended after being indicted, after only a year at Morgan for activities that occurred at another bank. FINRA's ruling doesn't speak to the innocence of these men but more likely speaks to the legality of their signing contract with Morgan, whatever the specifics actually were. According to other related articles, they got to keep their bonuses because the fraud was not committed at Morgan.

[goshorn]

02:26 PM on 08/13/2010

So one guy gets up to five years and the other is looking at possibly life.....so where does the money if the guy gets life in prison?

I don't get it basically steal all that money and get charged and then prosecuted for it but then go and rewad you by giving you the money you stole in the first place. HUH?!!!

[marsjo]

01:59 PM on 08/13/2010

I forget to add that this determination that these two guys should be able to keep their bonuses is just plain wrong, wrong, wrong!

[Olivia South]

03:49 PM on 08/13/2010

It would be so nice if you actually knew what this case was about and then COMMENTED. And if you think you know what this case is about by reading the above story..you are sadly mistaken. This case is about Glaxo Smith Kline, Potash, ST MICRO ELECTRONIC the largest multi-national firms in the world wanting to to hang some guy out to dry so they can stregnthen their civil cases...it's about the corporations wanting their money back that they invested for years with a broker and were happy untill the market froze. Do you think Eric butler used white out to change their account statements. Do you think their auditors and London School of Economics trained CFO's couldnt read official account statements that are used to audit publicly traded companies montlhly?

[marsjo]

05:47 PM on 08/13/2010

Apparently you have a lot invested in this case. Where that stems from I don't know but clearly you feel they were framed and unjustly became the fall guys for a corporate conspiracy the foiled the feds with. Hmmmm. Ok. So, usually these things are a house of cards if there is a conspiracy and I'm assuming these guys had lawyers and with that kind of money hanging in their bank accounts I'm assuming they could do the research if the hints of the information you gave could lead anywhere. Maybe you have uncovered a well contrived frame job. Be that as it may, I don't know, have some real skepticism about that and it still is off the topic that I think is germane to the article. They were both convicted of felonies, they committed those felonies (supposedly) as a way of collecting huge bonuses. You may be right they may not have committed the felonies but I'm not happy with convicted felons keeping bonuses they earned while committing felonies. Period. You prove that they didn't do it and they get to keep their bonuses. So appeal the case, they have "bonus" money and clear their name.

[marsjo]

01:58 PM on 08/13/2010

Ok, something is odd in the way Huff Po moderates, removes or doesn't remove comments. On the one hand it says someone I follow made a comment. When I click on their comment to comment, Huff Po says it was removed according to their moderation guidelines. When I come back to the main article posting the comment is there again. I realize Huff Po must have a very complicated network of programs dealing with fans, faves, followers and abusive deletions, but as a user, I get a little confused as to who did what in which way. I do hope they get things smoothed out soon as it is a little frustrating sometimes.

[Olivia South]

01:14 PM on 08/13/2010

I've put soooo many coments on here clarifying this case. I sat throught it have read the briefs have heard the testimony and cross testimony have talked to the prosecutors and the defense attorneys. But they have not been posted. So much for giving people a chance to have the all the facts, not just a snipet here and there..... and THEN making a decison.

[Pleroma]

01:33 PM on 08/13/2010

The censorship aspect of journalism and "journalism" concerns us all. I'm beginning to see the advantage of cross-posting for just this reason. Maybe you need a blog of your own.

Freedom of the press and the prerogative of hostesses flows well if imperfectly here.

[sloreader]

11:03 PM on 08/15/2010

So what did you discover?