Tourre: Ex-Goldman Trader Liable For Fraud

Am ex-Goldman Sachs trader who earned the nickname "Fabulous Fab" has been found liable in a fraud case linked to the 2007 mortgage crisis that helped push the country into recession.

Fabrice Tourre, a French-born Stanford graduate, became the face of Wall Street greed after he once joked about selling toxic mortgage assets to "widows and orphans".

He was accused of misleading institutional investors about subprime mortgage securities that he knew were doomed to fail.

This set the stage for a valued Goldman hedge fund client, Paulson & Co. Inc., to secretly bet against the investment.

The manoeuvre ended up making $1bn for the hedge fund and its wealthy president, John A Paulson, and millions of dollars in fees for Goldman.

Tourre worked as a trader at Goldman Sachs

Thursday’s verdict at the civil trial in Manhattan federal court represents the most high-profile legal action by the Securities and Exchange Commission (SEC) related to the subprime meltdown.

The 34-year-old was found liable in six of seven SEC fraud and other claims and faces potential fines and a possible ban from the financial industry.

The SEC also sought to show that it helped earn Tourre a bonus that boosted his salary to $1.7m in 2007.

In closing arguments, Martens called Tourre's testimony "surreal, imaginary, unreal, dream-like" and told jurors that the defendant wanted them "to live in his imaginary land ... to live in a fantasy world."

"Only if you close your eyes to the facts, you can find Mr Tourre not liable for his actions," the SEC lawyer said.

Tourre's lawyer, John Coffey, countered that the government had "unjustly accused him of wrongdoing".

Mr Coffey urged jurors to put the investment's failure in perspective, noting that all similarly packaged securities "went off the cliff as well" after 2007.

Some of the evidence focused on a personal email Tourre sent to his girlfriend in France.

The SEC lawyers said it proved the hubris of a man at the centre of a massive fraud, while the defence claimed it was "an old-fashioned love letter" penned by a young trader who was full of self-doubt and angst over upheaval in the financial world.

Writing in French, Tourre said of the financial markets: "The whole building is about to collapse any time now."

"Only potential survivor, the fabulous Fab ... Standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!"

Pressed by Marten on what he meant, Tourre said, "I didn't create any monstrosities."

Goldman settled with the SEC in 2010 by paying a $550m fine without admitting or denying wrongdoing.

Tourre left the firm in 2012 and is studying for his doctorate in economics at the University of Chicago.

A former SEC enforcement lawyer, Jacob Frenkel said that although Tourre was a "small player", the outcome marked an important victory for federal regulators.

He said: "The SEC had a lot at stake in this case. This validates the SEC's high-risk gambit to take on Goldman Sachs in connection with this transaction."

(function(d){ var js, ref = d.getElementsByTagName('script')[0]; js = d.createElement('script'); js.id = 'outbrainjs'; js.async = true; js.src = "//widgets.outbrain.com/outbrain.js"; ref.parentNode.insertBefore(js, ref); }(document));

View the original article here

Tourre: Ex-Goldman Trader Liable For Fraud

Am ex-Goldman Sachs trader who earned the nickname "Fabulous Fab" has been found liable in a fraud case linked to the 2007 mortgage crisis that helped push the country into recession.

Fabrice Tourre, a French-born Stanford graduate, became the face of Wall Street greed after he once joked about selling toxic mortgage assets to "widows and orphans".

He was accused of misleading institutional investors about subprime mortgage securities that he knew were doomed to fail.

This set the stage for a valued Goldman hedge fund client, Paulson & Co. Inc., to secretly bet against the investment.

The manoeuvre ended up making $1bn for the hedge fund and its wealthy president, John A Paulson, and millions of dollars in fees for Goldman.

Tourre worked as a trader at Goldman Sachs

Thursday’s verdict at the civil trial in Manhattan federal court represents the most high-profile legal action by the Securities and Exchange Commission (SEC) related to the subprime meltdown.

The 34-year-old was found liable in six of seven SEC fraud and other claims and faces potential fines and a possible ban from the financial industry.

The SEC also sought to show that it helped earn Tourre a bonus that boosted his salary to $1.7m in 2007.

In closing arguments, Martens called Tourre's testimony "surreal, imaginary, unreal, dream-like" and told jurors that the defendant wanted them "to live in his imaginary land ... to live in a fantasy world."

"Only if you close your eyes to the facts, you can find Mr Tourre not liable for his actions," the SEC lawyer said.

Tourre's lawyer, John Coffey, countered that the government had "unjustly accused him of wrongdoing".

Mr Coffey urged jurors to put the investment's failure in perspective, noting that all similarly packaged securities "went off the cliff as well" after 2007.

Some of the evidence focused on a personal email Tourre sent to his girlfriend in France.

The SEC lawyers said it proved the hubris of a man at the centre of a massive fraud, while the defence claimed it was "an old-fashioned love letter" penned by a young trader who was full of self-doubt and angst over upheaval in the financial world.

Writing in French, Tourre said of the financial markets: "The whole building is about to collapse any time now."

"Only potential survivor, the fabulous Fab ... Standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!"

Pressed by Marten on what he meant, Tourre said, "I didn't create any monstrosities."

Goldman settled with the SEC in 2010 by paying a $550m fine without admitting or denying wrongdoing.

Tourre left the firm in 2012 and is studying for his doctorate in economics at the University of Chicago.

A former SEC enforcement lawyer, Jacob Frenkel said that although Tourre was a "small player", the outcome marked an important victory for federal regulators.

He said: "The SEC had a lot at stake in this case. This validates the SEC's high-risk gambit to take on Goldman Sachs in connection with this transaction."

(function(d){ var js, ref = d.getElementsByTagName('script')[0]; js = d.createElement('script'); js.id = 'outbrainjs'; js.async = true; js.src = "//widgets.outbrain.com/outbrain.js"; ref.parentNode.insertBefore(js, ref); }(document));

View the original article here

Tourre: Ex-Goldman Trader Liable For Fraud

Am ex-Goldman Sachs trader who earned the nickname "Fabulous Fab" has been found liable in a fraud case linked to the 2007 mortgage crisis that helped push the country into recession.

Fabrice Tourre, a French-born Stanford graduate, became the face of Wall Street greed after he once joked about selling toxic mortgage assets to "widows and orphans".

He was accused of misleading institutional investors about subprime mortgage securities that he knew were doomed to fail.

This set the stage for a valued Goldman hedge fund client, Paulson & Co. Inc., to secretly bet against the investment.

The manoeuvre ended up making $1bn for the hedge fund and its wealthy president, John A Paulson, and millions of dollars in fees for Goldman.

Tourre worked as a trader at Goldman Sachs

Thursday’s verdict at the civil trial in Manhattan federal court represents the most high-profile legal action by the Securities and Exchange Commission (SEC) related to the subprime meltdown.

The 34-year-old was found liable in six of seven SEC fraud and other claims and faces potential fines and a possible ban from the financial industry.

The SEC also sought to show that it helped earn Tourre a bonus that boosted his salary to $1.7m in 2007.

In closing arguments, Martens called Tourre's testimony "surreal, imaginary, unreal, dream-like" and told jurors that the defendant wanted them "to live in his imaginary land ... to live in a fantasy world."

"Only if you close your eyes to the facts, you can find Mr Tourre not liable for his actions," the SEC lawyer said.

Tourre's lawyer, John Coffey, countered that the government had "unjustly accused him of wrongdoing".

Mr Coffey urged jurors to put the investment's failure in perspective, noting that all similarly packaged securities "went off the cliff as well" after 2007.

Some of the evidence focused on a personal email Tourre sent to his girlfriend in France.

The SEC lawyers said it proved the hubris of a man at the centre of a massive fraud, while the defence claimed it was "an old-fashioned love letter" penned by a young trader who was full of self-doubt and angst over upheaval in the financial world.

Writing in French, Tourre said of the financial markets: "The whole building is about to collapse any time now."

"Only potential survivor, the fabulous Fab ... Standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!"

Pressed by Marten on what he meant, Tourre said, "I didn't create any monstrosities."

Goldman settled with the SEC in 2010 by paying a $550m fine without admitting or denying wrongdoing.

Tourre left the firm in 2012 and is studying for his doctorate in economics at the University of Chicago.

A former SEC enforcement lawyer, Jacob Frenkel said that although Tourre was a "small player", the outcome marked an important victory for federal regulators.

He said: "The SEC had a lot at stake in this case. This validates the SEC's high-risk gambit to take on Goldman Sachs in connection with this transaction."

(function(d){ var js, ref = d.getElementsByTagName('script')[0]; js = d.createElement('script'); js.id = 'outbrainjs'; js.async = true; js.src = "//widgets.outbrain.com/outbrain.js"; ref.parentNode.insertBefore(js, ref); }(document));

View the original article here

Paulson will not testify in Tourre trial

By Nate Raymond and Katya Wachtel

NEW YORK (Reuters) - Hedge fund billionaire John Paulson will not testify in the high-profile civil case against former Goldman Sachs Group Inc bond trader Fabrice Tourre, who is on trial in federal court in New York.

The U.S. Securities and Exchange Commission accuses Tourre of failing to tell investors that 57-year-old Paulson's hedge fund firm intended to bet against Goldman Sachs' Abacus 2007-AC1. The $2 billion offering was tied to subprime mortgage bonds and known as a synthetic collateralized debt obligation.

Tourre denies wrongdoing.

On Monday morning U.S. District Judge Katherine Forrest cited a July 28 letter by Tourre's lawyers saying they no longer plan to call Paulson and others on their witness list to testify.

Sean Coffey, a lawyer for Tourre, confirmed the legal team would not be calling Paulson, as did a spokeswoman for the Southern District of New York in an emailed statement.

Paulson's firm had helped to select the securities that were packaged into the deal. The SEC says Tourre told investors that Paulson's firm was investing in Abacus, suggesting he expected the price of the securities to rise, when actually the hedge fund was shorting it.

The shorting of the deal was part of Paulson's broader bet against the U.S. housing market in 2007, which earned him Wall Street fame and billions of dollars.

The trial may draw to a close sooner than expected. Closing arguments may take place Tuesday or Wednesday, Forrest said on Monday morning.

"Summations are expected to be heard on Wednesday, though this is subject to change," the court spokeswoman said.

The case is SEC v. Tourre, U.S. District Court, Southern District of New York, No. 10-03229.

(Reporting By Katya Wachtel and Nate Raymond; Editing by Lisa Von Ahn)

View the original article here

Paulson will not testify in Tourre trial

By Nate Raymond and Katya Wachtel

NEW YORK (Reuters) - Hedge fund billionaire John Paulson will not testify in the high-profile civil case against former Goldman Sachs Group Inc bond trader Fabrice Tourre, who is on trial in federal court in New York.

The U.S. Securities and Exchange Commission accuses Tourre of failing to tell investors that 57-year-old Paulson's hedge fund firm intended to bet against Goldman Sachs' Abacus 2007-AC1. The $2 billion offering was tied to subprime mortgage bonds and known as a synthetic collateralized debt obligation.

Tourre denies wrongdoing.

On Monday morning U.S. District Judge Katherine Forrest cited a July 28 letter by Tourre's lawyers saying they no longer plan to call Paulson and others on their witness list to testify.

Sean Coffey, a lawyer for Tourre, confirmed the legal team would not be calling Paulson, as did a spokeswoman for the Southern District of New York in an emailed statement.

Paulson's firm had helped to select the securities that were packaged into the deal. The SEC says Tourre told investors that Paulson's firm was investing in Abacus, suggesting he expected the price of the securities to rise, when actually the hedge fund was shorting it.

The shorting of the deal was part of Paulson's broader bet against the U.S. housing market in 2007, which earned him Wall Street fame and billions of dollars.

The trial may draw to a close sooner than expected. Closing arguments may take place Tuesday or Wednesday, Forrest said on Monday morning.

"Summations are expected to be heard on Wednesday, though this is subject to change," the court spokeswoman said.

The case is SEC v. Tourre, U.S. District Court, Southern District of New York, No. 10-03229.

(Reporting By Katya Wachtel and Nate Raymond; Editing by Lisa Von Ahn)

View the original article here

Tourre on stand says email in SEC case 'not accurate'

1 of 6. Former Goldman Sachs trader Fabrice Tourre (C) leaves the Manhattan Federal Court in New York July 24, 2013.

Credit: Reuters/Eduardo Munoz

By Nate Raymond and Lauren Tara LaCapra

NEW YORK | Thu Jul 25, 2013 6:36pm EDT

NEW YORK (Reuters) - Fabrice Tourre, the former Goldman Sachs trader accused of secretly helping the hedge fund of billionaire John Paulson construct a $2 billion deal it could bet against, said Wednesday an email he sent to a key participant in the investment was inaccurate.

Tourre, 34, made the statement after taking the stand in the eighth day of what has become the highest-profile trial to come out of the U.S. Securities and Exchange Commission's investigations of the 2008 financial crisis.

The trial is a chance for the SEC to show it can win big cases against individuals on Wall Street for wrongdoing that caused the financial crisis.

SEC lawyers say Tourre was driven by "Wall Street greed" to mislead investors in the infamous investment called Abacus 2007-AC1. Tourre denies any wrongdoing.

Early questioning of Tourre on Wednesday afternoon focused on a January 10, 2007, email Tourre sent describing what became Abacus to an executive at ACA Capital Holdings Inc, which the SEC claims was misled into believing hedge fund Paulson & Co Inc was an equity investor.

The email said the riskiest slice of Abacus was "pre-committed," which an executive at ACA testified she believed meant Paulson would invest in it. Tourre, who left Goldman in 2012, acknowledged Wednesday that it was not pre-committed.

Asked repeatedly by an SEC lawyer if the statement was "false," Tourre said, "It was not accurate."

"I wasn't trying to confuse anybody, it just wasn't accurate at the time," he said.

2010 LAWSUIT

Tourre's testimony comes three years after the SEC accused him and Goldman Sachs Group Inc of fraud over Abacus, a synthetic collateralized debt obligation.

Defendants can assert the right under the U.S. Constitution not to testify, to avoid incriminating themselves, and frequently do in criminal cases. But experts say that in a civil case, such as Tourre's, a jury could draw an adverse inference if he asserted that right.

"It creates the presumption you did something wrong," said David Marder, a former SEC lawyer at Robins, Kaplan, Miller & Ciresi.

Goldman and Tourre did not tell potential investors that Paulson & Co helped select the mortgage-backed securities linked to Abacus and then went on to bet against it.

When the securities in Abacus turned toxic amid the downturn in the U.S. subprime mortgage market, investors lost $1 billion, the SEC says. Paulson, who made $15 billion betting against the housing market, meanwhile made about $1 billion shorting the CDO, the SEC says.

Goldman Sachs agreed in July 2010 to pay $550 million to settle the claims against it without admitting or denying wrongdoing. Before that accord was announced, Tourre received a settlement offer but rejected it, a person familiar with the matter said.

Tourre, who in an email cited by the SEC is referred to as the "Fabulous Fab," is now an economics doctoral student at the University of Chicago. He faces a fine and a lifetime ban from the securities industry if jurors find him liable.

At times, the judge or court reporter had difficulty understanding the pronunciation of some words, including "bond," by Tourre, a Frenchman.

"Sorry, my French accent, I guess," he said.

'NOBODY EVER CORRECTED ME'

The January 10, 2007, email was sent by Tourre to Laura Schwartz, a former managing director at ACA, at a time when ACA was being considered as the portfolio selection agent on the Abacus deal.

While Tourre acknowledged that the language about the risky slice of Abacus being "pre-committed" wasn't accurate, he insisted that he did not intentionally mislead anyone. He also said a description of Paulson as "transaction sponsor" did not mean the hedge fund was an equity investor.

Tourre, dressed in a black suit and purple tie, rejected the interpretation of his former supervisor at Goldman, Jonathan Egol, who last week said he "wouldn't customarily have used the term" to mean a short investor. Tourre said he used the term to also mean a short in emails about other deals.

"Nobody ever corrected me," he said.

An email by Schwartz four days later to a Goldman saleswoman forwarded to Tourre referred to Paulson having an "equity perspective."

Asked by SEC lawyer Matthew Martens if there was an interpretation for that phrase other than Paulson being an equity investor, Tourre said he didn't have any. He said he had "no memory" of alerting the Goldman saleswoman or Schwartz to say Paulson wasn't an equity investor.

ACA, which was renamed Manifold Capital Corp in 2008, ultimately not only helped set up Abacus as the portfolio selection agent but also bought $42 million of securities in the deal and agreed to insure a $909 million slice of it via its then-subsidiary ACA Financial Guaranty Corp.

SCHWARTZ TESTIMONY

Tourre took the stand after a second day of questioning of Schwartz, the SEC's star witness. She had testified Tuesday that she "believed Paulson would be the equity investor in the transaction.

Sean Coffey, a lawyer for Tourre, asked Schwartz on Wednesday if she "just assumed it was an investor."

Coffey asked Schwartz about other mortgage deals ACA did with hedge funds and asked if she knew if they planned to short them on top of their investments in the transactions. Schwartz said she didn't recall or know.

Coffey then questioned Schwartz about why she didn't ask about this if, as she had earlier testified, ACA would have avoided working with Paulson, had its short position been known, to protect ACA's reputation.

"If it mattered, wouldn't you ask?" Coffey said.

The case is SEC v. Tourre, U.S. District Court, Southern District of New York, No. 10-03229.

(This story is corrected with day email cited in 22nd paragraph was sent)

(Reporting by Nate Raymond and Lauren Tara LaCapra; Editing by Eddie Evans and Douglas Royalty)

View the original article here