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Jury Finds Former Credit Suisse Broker Guilty of Securities Fraud
Investor Losses Total Nearly $1 Billion

U.S. Attorney’s Office August 17, 2009
  • Eastern District of New York (718) 254-7000

Benton J. Campbell, United States Attorney for the Eastern District of New York, announced that a federal jury in Brooklyn returned verdicts today in which they found former Credit Suisse broker Eric Butler guilty of conspiracy and securities fraud after a three week trial. When sentenced by Senior United States District Judge Jack B. Weinstein, Butler will face a maximum sentence of 45 years’ imprisonment.

The evidence at trial established that Butler and Julian Tzolov, another former Credit Suisse Broker, defrauded their clients in order to obtain higher sales commissions.1 Butler and Tzolov sold auction rate securities (“ARS”) backed by mortgages to Credit Suisse clients who, in fact, had placed orders to buy ARS backed by government-guaranteed student loans. Butler and Tzolov told their clients that student loan-backed ARS were very low-risk investments guaranteed by the United States government and that the market for the securities was very liquid. As a result, a number of the companies agreed to invest money in these ARS. However, without the knowledge or consent of the companies, Butler and Tzolov began to use the companies’ funds to purchase riskier higher-yield, mortgage-backed collateralized debt obligations, or “CDOs,” which paid Butler and Tzolov higher commissions. CDOs are assetbacked products built from a portfolio of fixed-income assets, including mortgages, subprime mortgages, and second mortgages, many of which were not guaranteed by the government. Butler and Tzolov concealed their scheme by falsifying the names of the ARS the clients bought and otherwise misleading the clients into believing they had bought ARS backed by student loans. In approximately August 2007, the scheme was discovered when the market for the mortgage-backed CDOs purchased by the companies collapsed and various auctions for CDOARS began to fail. The resulting losses to investors totaled almost $1 billion.

“The defendant’s fraudulent misrepresentations saddled investors with unknown risks they did not bargain for,” stated United States Attorney Campbell. “This case shows that those who engage in such schemes will be held to account for their criminal activity.” Mr. Campbell expressed his grateful appreciation to the Federal Bureau of Investigation and the United States Securities & Exchange Commission for their assistance during the trial.

The government’s case was prosecuted by Assistant United States Attorneys Greg D. Andres, Daniel Spector, and John Nowak.

The Defendant:

Age: 36

1 Tzolov pleaded guilty to conspiracy, securities fraud, and other charges arising from the scheme on July 22.

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