The U.S. Securities and Exchange Commission has charged two Wall Street brokers with defrauding their customers when selling them auction rate securities.

The SEC alleges that two former brokers from Credit Suisse Securities (USA) LLC 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 that they purchased for their customers were backed by subprime mortgages, collateralized debt obligations, and other non-student loan collateral.

The commission’s complaint, which was filed today in federal court in Manhattan, seeks permanent injunctive relief, disgorgement of ill-gotten gains, if any, plus prejudgment interest on a joint and several basis, and civil money penalties. None of the allegations have been proven.

“As alleged in our complaint, these two brokers foisted more than US$1 billion in subprime-related securities upon unsuspecting customers to illegally obtain higher commissions from their sales,” said Linda Chatman Thomsen, director of the SEC’s division of enforcement. “As always, if you commit fraud, you can expect to be held accountable by the SEC. The enforcement division’s vigilance extends throughout our financial markets, including the subprime lending and credit markets.”

It notes that the division formed a subprime working group, which is investigating possible fraud, market manipulation, and breaches of fiduciary duty that may have contributed to the recent turmoil in the credit markets.