Mr. Butler's conviction relates to fraudulently selling millions in subprime securities and reaping huge commissions in the process. Mr. Butler's co-defendant Julian Tzolov also plead guilty to conspiracy, wire fraud and securities fraud. He turned on his former colleague and became a prosecution witness against Mr. Butler. Mr. Tzolov, he was originally thought to have fled to Bulgaria but actually fled to Spain for three months to avoid persecution but returned to testify. Mr. Tzolov even went so far to hire a bodyguard and carry false documents while on the lamb. Mr. Butler faces a maximum sentence of up to 45 years.
It looks like the judge will go easy on them since he believed they operated in a so-called "culture of corruption." Adding insult to injury Bloomberg is reporting that the judge told lawyers for both the defense and the government to put Mr. Butler and Mr. Tzolov's deeds in the context of, "how pernicious and pervasive was the culture of corruption, lack of regulation” and “serious negligence in the financial services industry in supervising people like this.” I'm sure this will be a big condolence to Butler's and Tzolov's victims who include GlaxoSmithKline Plc, Roche Holding AG and Potash Corp. of Saskatchewan.
Butler and Tzolov's scheme involved selling securities which they told people were backed by federally-guaranteed student loans. They further told their clients that they were a safe alternative to bank deposits or money market funds. In fact, the subprime securities were linked to auction rate securities. It is expected that Mr. Butler will appeal.... stay tuned.
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