The Financial Times reports that US federal prosecutors have launched an investigation to establish whether two former Credit Suisse bankers misled clients about the nature of investments in 'auction rate' securities.

According to the newspaper, Eric Butler and Julian Tzolov resigned from Credit Suisse in September, after certain clients alleged that they were told that securities they bought 'were backed by student loans, when they were instead tied to pools that included subprime mortgages'.

Credit Suisse, which itself is not thought to be a target in the investigation, said in a statement issued Tuesday: 'Nearly a year ago, we detected prohibited activity by two former cash management employees who were immediately suspended. These two employees, who resigned in September 2007, violated their obligations to Credit Suisse and to our clients. We promptly notified our regulators when this matter arose last year and we have continued to work closely with them'.

Bloomberg quotes Tzolov's attorney, who told the news agency in a telephone interview: 'Julian Tzolov is a well-respected financial adviser who should not be blamed for an unprecedented and unforeseeable market failure. The auction-rate securities in question were AAA-rated, and the clients who purchased them were sophisticated corporate cash managers who understood the potential benefits and risks. (My client) deceived no one, and he had his clients' interests at hear at all times'.

The brokers joined Morgan Stanley after leaving Credit Suisse, but are said to have left that firm this week.

Finally, Reuters reports that 43-year-old former Morgan Stanley client service representative Ronald Peteka has pleaded guilty in a US Federal court to charges which relate to possession of property belonging to the Wall Street firm. Peteka is said to have obtained a list of Morgan Stanley's prime brokerage clients and other data about the accounts from a former firm IT consultant, and forwarded them to his home. There was apparently talk about using the information in a planned new business venture. 

Peteka, who acknowledged to the court that 'I made a huge mistake', now faces up to 10-years in clink, together with a fine of up to $250,000.

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