Former Credit Suisse Group AG broker Eric Butler is likely to receive the same five-year sentence after a federal appeals court overturned his securities-fraud conviction earlier this week, a judge said today.
The U.S. Court of Appeals in New York on June 15 overturned Butler’s securities-fraud conviction, ruling that Brooklyn was the wrong venue for the trial on the charge. The appeals court upheld Butler’s conviction on two conspiracy counts.
The appeals panel said that, because of its decision, Butler will have to be resentenced. In January 2010, U.S. District Judge Jack B. Weinstein sentenced Butler to five years in prison on each count, to be served concurrently. He has been out on bail pending his appeal.
“While the matter is open, it is unlikely that the sentencing terms on Counts One and Three will be changed from five years’ imprisonment, concurrent,” Weinstein said in an order today.
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.
$1.1 Billion Losses
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.
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 the 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.
U.S. Attorney Loretta Lynch said in a motion this week that Butler should go immediately to prison and asked Weinstein to set a court date as soon as possible. The judge today scheduled arguments in the case for June 28 and said Butler should be prepared for “immediate incarceration.”
Weinstein said Butler may be retried in the Eastern District of New York on the securities-fraud charge if testimony by Tzolov establishes that some elements of the crime were carried out at the airport. Butler may face a longer sentence if he is indicted, tried and convicted in the Southern District of New York, the judge said.
“Possibly, then, defendant’s favorable judgment on appeal would be Pyrrhic victory at best, or a disaster at worst,” Weinstein said. He said Butler should consider withdrawing his objection to trying the case in the Eastern District of New York.
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.
Steven Molo, an attorney representing Butler, didn’t immediately return a message left at his office seeking comment.
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, 2nd U.S. Circuit Court of Appeals (Manhattan).