Bloomberg News

Ex-Credit Suisse Broker Butler Appeals Fraud Sentencing

February 17, 2012

(Updates with excerpt from filing in third paragraph.)

Feb. 16 (Bloomberg) -- Former Credit Suisse Group AG broker Eric Butler appealed his five-year prison sentence for misleading clients about securities purchased on their behalf in what prosecutors called a $1 billion fraud.

Butler, first convicted in 2009, deserves a new sentencing hearing because he couldn’t have anticipated the collapse of the auction-rate securities market, his lawyers said today in a filing in the U.S. Court of Appeals in Manhattan.

“Since Mr. Butler’s sentencing, there has been independent evidence that leaves no doubt that the collapse of the ARS market was entirely unforeseeable and that, accordingly, Mr. Butler’s sentence should not have been enhanced for gain,” Butler’s lawyers wrote.

Butler also argued that the court “gave scant regard” to mental-health treatment he received after his initial sentencing in 2010 and work he did with children in his community.

“Mr. Butler’s post-sentencing rehabilitation is arguably more relevant than other kinds of post-offense rehabilitation since, having already been sentenced, there was little motive for Mr. Butler to act as he did merely to impress the court to engender leniency,” his lawyers said in the filing.

Institutional Clients

A federal jury in Brooklyn, New York, convicted Butler in August 2009 of intentionally misleading his institutional clients, including GlaxoSmithKline Plc and Roche Holding AG, about securities purchased on their behalf. Victims’ losses were more than $1.1 billion, according to the government.

Butler’s partner, Julian Tzolov, who was indicted with him, testified against Butler. Tzolov, a native of Bulgaria, had fled the U.S. and was captured in Spain after an international manhunt. He pleaded guilty upon his return to the U.S. and was sentenced in June to four years in prison.

Butler and Tzolov falsely claimed that the securities they put their clients in were backed by federally guaranteed student loans, prosecutors said.

The men told clients the investments, actually backed by riskier corporate debt and subprime mortgages, were a safe alternative to bank deposits or money-market funds, witnesses said and evidence showed.

The jury found Butler guilty of securities fraud, conspiracy to commit securities fraud and conspiracy to commit wire fraud.

Appeals Panel

The federal appeals court in Manhattan in June overturned the securities-fraud conviction, saying the charge should have been tried in federal court in Manhattan, where Credit Suisse has its office, rather than in Brooklyn. The appeals panel upheld the two conspiracy convictions.

Butler then got seven wire-fraud counts in Manhattan federal court moved to Brooklyn and consented to having the securities-fraud count there as well.

On Aug. 23, Butler pleaded guilty to those counts, which all stemmed from the same activity, and U.S. District Judge Jack B. Weinstein sentenced him to the same five years he had imposed in 2010. The judge also re-imposed a $5 million fine on the securities-fraud conviction.

Butler began serving his sentence at a federal prison in Fort Dix, New Jersey, in September.

The case is U.S. v. Tzolov, 08-cr-370, U.S. District Court, Eastern District of New York (Brooklyn).

--Editors: Peter Blumberg, Stephen Farr

To contact the reporters on this story: Patricia Hurtado in New York at; Chris Dolmetsch in New York at

To contact the editor responsible for this story: Michael Hytha at

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