Ex-Credit Suisse broker gets 5 years prison

NEW YORK (Reuters) - A federal judge sentenced former Credit Suisse Group AG broker Eric Butler to five years in prison and a $5 million fine for fraudulently selling risky securities to corporate clients, causing what prosecutors said were $1.12 billion of losses.

U.S. Senior District Judge Jack Weinstein in Brooklyn, New York imposed the sentence at a 3-hour hearing in which Butler, 38, expressed deep regret for his actions, but maintained he did not intend to cause losses for his clients. His lawyers plan to appeal.

A jury found Butler guilty in August of securities fraud and two counts of conspiracy over the sale of risky, so-called auction-rate securities.

"The defendant disregarded his responsibility" to his clients in the hope of collecting higher commissions, Weinstein said.

Weinstein imposed a lower prison term than the 7-1/4 to nine years that federal guidelines recommend, citing the needs of Butler's family, several of whom were in the courtroom.

He ordered the defendant to forfeit about $250,000 of commissions and directed that the defendant's $4 million of assets be applied to the fine.

Prosecutors sought a prison sentence of at least 15 years, while the defense sought probation.

Steven Molo, one of Butler's lawyers, said after the hearing that "there's a significant issue" on appeal as to whether the government met the required standard of proof at trial.

"WOULD HAVE BEEN AN IDIOT" TO WANT CLIENT LOSSES

Butler's case is one of the first criminal prosecutions stemming from the credit crisis that began in 2007.

Julian Tzolov, a co-defendant, cooperated with prosecutors and testified against Butler in the three-week trial.

Prosecutors accused Butler and Tzolov of trying to win higher commissions by misleading clients into believing they were getting safe securities backed by federally guaranteed student loans.

They said the scheme unraveled in August 2007 when auctions began to fail. Companies harmed by Butler and Tzolov included fertilizer maker Potash Corp of Saskatchewan Inc, drugmaker Roche Holding AG and semiconductor company STMicroelectronics NV, prosecutors said.

At Friday's hearing, Weinstein said he could not quantify the actual losses caused by Butler and instead based the sentence on the amount of wrongful commissions.

"Butler would have been an idiot if he intended for his clients to lose money," the judge said. But he added: "He put this money at risk by fraud, causing loss."

FAITH IN THE MARKET, OR BLAMING THE BANKERS?

Butler broke down in the courtroom as he told the judge of the "devastating" impact the case has had and the prospect of being separated from his wife and two-year-old son.

He maintained he did not intend to hurt clients and could not have foreseen the collapse of the auction-rate market.

"I was a bond salesman and I purchased triple-A rated securities, and my belief was that those securities were infallible," he said. "I had faith in that market."

But Assistant U.S. Attorney Greg Andres countered Butler perpetrated a "bait-and-switch" and lied to clients through his unauthorized purchases, and was not being tried because the market collapsed.

"He continues to this day to blame the bankers" and others, Andres said.

Credit Suisse, in a statement referring to Butler and Tzolov, said it has since 2007 helped the authorities "bring these individuals to justice."

The company agreed with regulators in September 2008 to buy back $550 million of auction-rate debt from retail investors.

Tzolov pleaded guilty on July 22 to fraud and conspiracy charges and to bail-jumping for having fled to Spain. His sentencing is scheduled for April 27, court records show.

The case is U.S. vs. Tzolov et al, U.S. District Court, Eastern District of New York, No. 08-00370.

(Reporting by Jonathan Stempel; editing by Andre Grenon)