Legal News

The Butler Did It: Another Credit Suisse Broker Goes Down

By Ashby Jones

Wow. What a day on the auction-rate securities front. The same day New York attorney general Andrew Cuomo filed suit against Charles Schwab, alleging the company made misrepresentations to clients about the liquidity and risks of auction-rate securities, a jury convicted a former Credit Suisse Group broker for his participation in an auction-rate securities scheme. Click here, as well, for the story from Bloomberg.

A jury convicted former Credit Suisse Group broker Eric Butler of all charges Monday in an alleged scheme to mislead clients about the nature of auction-rate securities they were buying in order to generate higher commissions.

After less than a day of deliberations, the jury found Butler guilty of securities fraud and two counts of conspiracy.

A lawyer for Mr. Butler, Paul T. Weinstein, said: “We respectfully disagree with the verdict. Everybody in the financial community believed that the bonds sold in this case were of the highest quality and were safe short-term investments, before the market failed in August 2007. This market failure had nothing to do with Eric Butler. We will appeal.”

Prosecutors from the U.S. Attorney’s office in Brooklyn had alleged that Mr. Butler and Julian Tzolov, both formerly of Credit Suisse Securities, engaged in a plot to obtain higher commissions by selling clients higher-risk auction-rate securities backed by mortgages, when those clients actually wanted to buy lower-risk securities backed by student loans.

Tzolov pleaded guilty to three criminal indictments last month.

Butler faces up to 45 years in prison on the charges. But according to Bloomberg, U.S. District Judge Jack Weinstein said yesterday he probably won't impose the term sought by prosecutors when he sentences both Tzolov and Butler on Oct. 27, saying he believed they operated in a "culture of corruption."

“The defendant’s fraudulent misrepresentations saddled investors with unknown risks they did not bargain for,” U.S. attorney Benton Campbell said in a statement. “This case shows that those who engage in such schemes will be held to account for their criminal activity.”

Photo: AP

Full post as published by Law Blog - WSJ.com on August 18, 2009 (boomark / email).