WASHINGTON -- The Securities and Exchange Commission today charged two Wall Street brokers with defrauding their customers when making more than $1 billion in unauthorized purchases of subprime-related auction-rate securities.

The SEC alleges that Julian Tzolov and Eric Butler misled customers into believing that auction-rate securities being purchased in their accounts were backed by federally guaranteed student loans and were a "safe and liquid alternative" to bank deposits or money market funds. Instead, the securities were backed by subprime mortgages, collateralized debt obligations and other nonstudent loan collateral, the agency said.

While employed at Credit Suisse Securities (USA) LLC in New York, the SEC said Tzolov and Butler deceived foreign corporate customers in short-term cash management accounts by sending or directing their sales assistants to send e-mail confirmations in which the terms "St. Loan" or "Education" were added to the names of nonstudent loan securities purchased for the customers.

The SEC complaint alleges that customers were stuck holding more than $800 million in illiquid securities after auctions for auction-rate securities began to fail in August 2007. Those holdings have since significantly declined in value, the commission said.