Ex-Credit Suisse Broker Should Go to Prison Now, U.S. Says

Former Credit Suisse Group AG (CSGN) broker Eric Butler, whose conspiracy conviction for fraudulently selling securities was upheld yesterday, should go immediately to prison, the U.S. said.

The U.S. Court of Appeals upheld two conspiracy convictions against Butler. It reversed a securities-fraud conviction, ruling that Brooklyn, New York, was the wrong venue for the trial on the charge.

“In light of the Court of Appeals’ decision, the government now moves for the defendant’s immediate remand,” U.S. Attorney Loretta E. Lynch in Brooklyn said yesterday in a court filing. The appeals court said Butler needs to be resentenced, and Lynch asked for a court date for that “as soon as possible.”

Butler and his partner Julian Tzolov were accused of intentionally misleading clients about securities purchased on their behalf, falsely claiming they were backed by federally guaranteed student loans.

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, according to Lynch’s office. Victims’ losses were more than $1.1 billion, according to the government.

Steven F. Molo, a lawyer for Butler at MoloLamken LLP in Manhattan, didn’t return a call for comment. In a letter to U.S. District Judge Jack B. Weinstein today, Molo and Paul T. Weinstein, another Butler lawyer, opposed Lynch’s request.

‘Entitled to Bail’

“Mr. Butler is entitled to bail,” they wrote. “At every stage of this proceeding in which the question was relevant, including after conviction, this court found that Mr. Butler did not pose a risk of flight or a danger to the community.”

In January 2010, Weinstein sentenced Butler to five years in prison on each count, to be served concurrently. He has been out on bail pending his appeal. Butler, who was found guilty at a trial in 2009, also was fined $5 million on the securities- fraud conviction.

The appeals court rejected the government’s argument that Butler could be tried for securities fraud in the Eastern District of New York because he and Tzolov flew out of John F. Kennedy International Airport in Queens, which is part of the district, to meet with clients they defrauded.

Brooklyn is also in the Eastern District. The appeals panel said the alleged fraud took place in Credit Suisse’s office in Manhattan, which is in the Southern District of New York.

‘Overt Acts’

The court agreed with prosecutors that the Eastern District was the proper venue for the conspiracy counts because “Butler’s use of Kennedy airport to attend meetings with the investors were overt acts in furtherance of the conspiracies.”

He was convicted of conspiracy to commit securities fraud and conspiracy to commit wire fraud.

Butler and Tzolov were indicted in 2008. Tzolov, a native of Bulgaria, fled the U.S. before being returned from Spain in July 2009 and pleading guilty. He testified against Butler.

On June 7, Tzolov was sentenced to four years in prison, with 1 1/2 years of that for bail jumping.

The case is U.S. v. Tzolov, 08-cr-370, U.S. District Court, Eastern District of New York (Brooklyn). The appeal is U.S. v. Tzolov, 10-562, Second Circuit U.S. Court of Appeals (Manhattan).

To contact the reporter on this story: Thom Weidlich in Brooklyn, New York, federal court at tweidlich@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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