Ex-Credit Suisse broker jailed for 5 years

A former broker at investment Credit Suisse has been jailed for five years for misleading his clients by telling them that nearly US$1 billion was being invested in US government backed student loans, when in fact were tied to more risky sub-prime mortgages.

Eric Butler, formerly a managing director in Credit Suisse’s private banking division in charge of the corporate cash management group, was also ordered to pay a US$5 million fine. The recent sentce follows his trial and conviction last August. Federal prosecutors had originally asked for a sentence of at least 15 years.

According to facts unveiled during last year’s trial, between 2005 and 2007, Mr Butler, whose unit was responsible for helping clients manage excess corporate cash holdings, and a colleague misled clients by either sending or directing assistants to send emails with names of securities falsified to make them appear less risky.

This was done by removing terms referring to mortgages or collateralised debt obligations (CDO), which is type of product tied to sub-prime mortgages. Prosecutors said this was replaced with words which created an impression that the investments, consisted of auction rate securities totalling around US$900 million, were backed by student loans, and the clients were told that the product was a safe alternative to bank deposits or money market funds.

As a result of this scheme, some of Butler’s clients, which included sophisticated corporate investors the likes of drug company GlaxoSmithKline, lost as much as US$500 million, when the market for auction rate securities tied to CDOs froze in 2007.

Butler’s clients were then left with securities whose values sank as mortgage defaults rose. On the other hand, the sale of the products generated high commissions for Butler and his colleague.

A spokesman for Credit Suisse, David Walker, told the Wall Street Journal: “Since 2007, when we promptly informed our regulators of this matter, Credit Suisse has assisted the authorities to bring these individuals to justice.”

Paul Weinstein, Butler’s lawyer, said his client would seek to appeal the sentence.