39 Year Old Broker Gets Time In The Joint And $5M Fine

Eric Butler, a 39 year old former broker for Credit Suisse Group AG, has been sentenced to five (5) years in prison and ordered to pay a $5 million fine by U.S. District Judge Jack Weinstein in Brooklyn, New York according to Reuters. Butler was accused of securities fraud and conspiracy by misrepresenting the risks involved with auction rate securities (ARS) he sold to investors which ended up causing them to lose roughly $1.2 billion. A jury convicted him in 2009 for those charges and he received a sentence of five years in prison and a $5 million fine. The conviction was in part overturned by the 2nd Circuit Court of Appeals in June 2011, saying that prosecutors should have filed the complaint in Manhattan where his office was located rather than in Brooklyn. The court reversed the fraud conviction. The case was transferred to Brooklyn for sentencing and Butler pled guilty to the seven wire fraud charges and securities fraud. Judge Jack Weinstein did not alter the original sentence of five years in prison and a $5 million fine.

The original trial in August 2009 lasted three weeks, ending in a guilty verdict. Based upon the various charges of securities fraud, conspiracy to commit securities fraud and conspiracy to commit wire fraud, Butler was looking at as much as 45 years in prison. However, U.S. District Judge Jack Weinstein decided on a shorter time in prison because of Butler’s exemplary family background and young child. He ordered Butler to serve 5 years in prison and ordered him to pay a $5 million fine in addition to giving back $500,000. During the trial, Judge Weinstein said “the defendant abused a position of power and influence, took advantage of his clients’ trust, and defrauded them out of amounts of money which are impossible to calculate.” He went on to say that “the defendant disregarded his responsibility to the financial well being of his clients for the sake of his own short term financial gain.” The judge went on to call out the entire industry when he said that the Butler case “laid bare the pernicious and pervasive culture of corruption in the financial services industry” which was controlled by greed.

Butler was teamed up with Julian Tzolov in the fraudulent activity whereby they misrepresented the auction rate securities (ARS) they were selling to their institutional investors. Tzolov and Butler worked as managing directors in Credit Suisse’s private banking department between November 2003 and September 2007. The two joined forces in marketing the products they sold as being safe as cash or money market funds and said they were backed by federally guaranteed student loans, when in fact they were auction rate securities (ARS) backed by subprime mortgages and corporate debt. The sale of over $900 million worth of the misrepresented subprime products resulted in massive losses for investors, including GlaxoSmithKline PLC, Roche Holdings AG and Potash Corporation. In addition to misrepresenting the risks of the investments, the two would send emails to their clients with fake names of the products they bought to conceal what the investors had actually purchased. Tzolov pled guilty to the securities fraud and conspiracy charges, along with a bail jumping claim for fleeing the country after his initial arrest. He later returned to testify against Butler in his trial. Tzolov was sentenced in June 2011 to four years in prison, including the two years he had already served.

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