(CN) – The 2nd Circuit axed the securities-fraud conviction of a former Credit Suisse Group AG broker whose trial venue of Brooklyn, N.Y., had been selected solely for its proximity to the airport that the broker frequented.
The government had charged Eric Butler and a co-conspirator, fellow Credit Suisse broker Julian Tzolov, in the Eastern District of New York, reasoning that they met with their many out-of-state clients by flying out of John F. Kennedy Airport, which is located Queens, a county within the district.
According to the government’s indictment, Butler and Tzolov sold their clients auction-rate securities they said were composed of government-guaranteed student loans, but which actually consisted of more risky debt.
When the bottom dropped out of the market for auction-rate securities, Butler and Tzolov’s clients lost nearly $1 billion.
Tzolov pleaded guilty to conspiracy, securities fraud and other charges, and testified against Butler. In August 2009, a jury convicted Butler of securities fraud, conspiracy to commit securities fraud and conspiracy to commit wire fraud.
The government had argued that the brokers’ JFK departures were part of the conspiracy to defraud investors, thus giving jurisdiction to the Eastern District.
While the Manhattan-based federal appeals court agreed that this argument justifies the conspiracy charges, it found that the securities-fraud charge needed more.
Under the statute with which Butler was charged, the government must satisfy a specific venue provision requiring that any criminal proceeding “be brought in the district wherein any act or transaction constituting the violation occurred,” according to the ruling.
“We have little difficulty concluding that the government failed to offer competent proof that any ‘act or transaction constituting the violation’ occurred in the Eastern District,” Judge Barrington Parker wrote for a three-judge panel. “Butler did not transmit any false or misleading information into or out of the Eastern District. All the fraudulent statements that were part of the government’s proof … were made in telephone calls or emails from Credit Suisse’s Madison Avenue offices located in the Southern District or in meetings with investors.”
The court characterized Butler’s flights out of JFK as “preparatory acts,” and as such “they were not acts ‘constituting’ the violation [securities fraud].”
Citing United States v. Beech-Nut Nutritionals, the judges said Butler should not have been tried in the Eastern District because “venue is not proper in a district in which the only acts performed by the defendant were preparatory to the offense and not part of the offense.”
Butler, who originally received a five-year prison sentence and a $5 million fine, will be resentenced on the remaining conspiracy convictions by U.S. District Judge Jack Weinstein.