* Broker was arrested in 2008, then fled for Spain
* After return, assisted prosecution of former partner
* Will pay $1.15 mln restitution, be deported after prison (Adds court recalculating prison term, details of revised sentence)
By Jessica Dye
NEW YORK, June 7 (Reuters) - A former Credit Suisse Group AG CSGN.VX broker will spend two more years in prison in addition to time already served for his role in running an investment scheme involving risky auction-rate securities.
U.S. District Judge Jack Weinstein had initially sentenced Julian Tzolov, 38, to five more years in prison at a court hearing on Tuesday, in addition to two years he has already served.
After the sentencing hearing, Tzolov’s attorney, Benjamin Brafman, asked the court to recalculate the sentence, taking into consideration time served. The revised sentence was set at four years, including the two, meaning he will serve an additional two years, according to a spokesman for the U.S. Attorney’s Office in Brooklyn.
Tzolov pleaded guilty in Brooklyn federal court in 2009 to three counts of securities fraud, conspiracy to commit securities fraud and conspiracy to commit wire fraud.
The scheme cost institutional clients $1 billion at the height of the financial crisis.
He also pleaded guilty to bail-jumping and visa fraud for fleeing the country after his arrest in 2008.
Prior to Tuesday’s sentencing, Brafman pleaded for leniency for his client, describing him as intelligent and remorseful.
Tzolov also noted his cooperation with the government in the prosecution of his partner in the fraud, Eric Butler, and said he wished to return to his native Bulgaria to see his elderly father.
“I feel extremely sorry for everything I’ve done,” Tzolov said.
Prosecutors also sought leniency for Tzolov based on his cooperation.
Tzolov will pay $1.15 million in restitution, and he will be deported to Bulgaria after prison.
Tzolov and Butler were charged with defrauding major institutional clients looking to invest excess cash in safe, short-term investments.
Tzolov admitted that he and Butler led clients to believe their money was being invested in securities backed by government-guaranteed student-loan debt, when in fact the securities were backed by far riskier corporate debt and subprime mortgages.
Victims of the scheme, including GlaxoSmithKline and Roche International NV, began to notice something was amiss when the auction-rate securities market fell apart in late 2007, Tzolov said.
After his arrest, Tzolov was released on $3 million bail. In 2009, he cut off his court-ordered electronic monitoring device and fled to Spain. He was arrested and returned to the United States several months later.
Upon his return, Tzolov pleaded guilty and began cooperating with authorities to build a case against Butler. He testified at Butler’s trial, explaining details of the fraud and describing how he and Butler would alter documents to conceal the nature of the investments.
Butler was convicted by a Brooklyn federal jury in August 2009, and sentenced to five years in prison in January 2010. He is currently free on bail while he appeals his conviction.
The case is US v Tzolov, in the U.S. District Court for the Eastern District of New York, Nos. 08-00370 and 09-00475. (Reporting by Jessica Dye, editing by Bernard Orr)