A federal jury found former Goldman Sachs Group Inc. trader Fabrice Tourre liable for misleading investors in a mortgage-linked deal that collapsed during the financial crisis, delivering a historic win for a U.S. regulator eager to prove its mettle inside the courtroom.
AFP/Getty Images Former Goldman Sachs trader Fabrice Tourre arrives at court on Thursday.
[h=3]Case Will 'Stay With Me Forever'[/h] Tourre, in interviews before the verdict, said he was resigned to his legacy as the face of the mortgage crisis. Read the article.
The panel of nine jurors reached their verdict during the second day of deliberations, finding Mr. Tourre liable on six of seven claims that he violated federal securities law.
"It was a long, slow process," said juror Beth Glover, a 47-year-old Episcopal priest, after the verdict.
The victory is an important one for the Securities and Exchange Commission, which has struck out in past efforts to make a convincing case to jurors in high-profile trials against individuals.
"We're obviously gratified with the jury's verdict and we appreciate their hard work," said Matthew Martens, the lead SEC lawyer, after the verdict was delivered.
[h=3]The Case Against Goldman and Fabrice Tourre[/h] See a timeline of key events in the civil-fraud saga against Goldman Sachs and Fabrice Tourre.
[h=3]Key Players in the Trial[/h]
Andrew Ceresney, co-director of the SEC's Division of Enforcement, added in a statement: "We will continue to vigorously seek to hold accountable, and bring to trial when necessary, those who commit fraud on Wall Street."
John "Sean" Coffey, Mr. Tourre's co-counsel, declined to comment.
Goldman Sachs, in a statement, said: "As a firm, we remain focused on being more transparent, more accountable, and more responsive to the needs of our clients."
For the SEC, the verdict offers a rebuttal to critics who have accused the agency of seeking to make fairly junior employees, such as Mr. Tourre, scapegoats for Wall Street's wider failings.
The civil trial, which began July 15, led jurors through a dense fog of industry jargon, to a time on Wall Street when one era was drawing to a close and the dark clouds of another loomed. The SEC's case centered on a complex mortgage-linked deal between sophisticated investors, and whether Mr. Tourre misled them on the role New York hedge fund Paulson & Co. would play in that instrument.
SEC officials will see their success in such a landmark and controversial lawsuit as vindication of their post-crisis enforcement efforts, including a push to ensure individuals are held to account alongside their employers, according to people close to the agency.
As part of those efforts, the agency has charged 157 firms and individuals to date, securing $2.68 billion in penalties and other sanctions, according to its website. The tally includes 66 Chief Executive Officers and other senior corporate officers.
Mr. Tourre, who left Wall Street to pursue a doctorate in economics, may face a fine and a ban from the securities industry.
The jury's decision on Thursday closes out one of the government's biggest efforts to find individuals at fault for the worst crisis in decades.
The SEC’s civil fraud case against Goldman Sachs mortgage trader Fabrice ‘Fabulous Fab’ Tourre centers on the use of a complex derivative investment known as “synthetic CDO.” What in the world is that? WSJ’s Liz Rappaport explains.
In April 2010, the SEC sued Mr. Tourre and Goldman for securities fraud, alleging they misled investors in a collateralized debt obligation called Abacus 2007-AC1. The action stunned the industry, drew Goldman into a bitter public backlash and shattered the once-promising career of Mr. Tourre.
Goldman settled within months, agreeing to pay a $550 million settlement without admitting or denying wrongdoing.
The SEC offered Mr. Tourre a deal, too, giving the former trader a day to accept a fine and a two-year ban from the securities business, people familiar with the matter said. He rejected the offer, vowing to fight all the way to federal court.
Abacus's origin can be traced to 2006, when Paulson & Co. went to Goldman with a trading idea to bet against subprime mortgages. Mr. Tourre had suggested creating a deal that would allow investors to place opposing bets on a basket of mortgage bonds.
Goldman set out to enlist a company to select those bonds, giving investors confidence that mortgages within that basket were neither too good nor too risky. By January, ACA Financial Guaranty Corp., a bond insurer that was one of Goldman's biggest CDO clients, appeared eager to take on the assignment, emails and court testimony showed.
What happened next helped define some of the biggest winners and losers of the crisis.
In its investigation, the SEC unearthed emails, phone calls and meetings it argued showed that Mr. Tourre led ACA executives to believe Paulson & Co. would be making a long investment in Abacus, betting its value would rise.
They also accused him of hiding the hedge fund's role in helping select the mortgage bonds from investors that would eventually bet on the deal.
The agency zeroed in on a Jan. 10, 2007 email Mr. Tourre had sent to an ACA executive, Laura Schwartz, suggesting an investor had already committed to buying the equity in Abacus. Days later, the SEC contended, Ms. Schwartz wrote a note to another Goldman salesperson, Gail Kreitman, suggesting she believed Paulson & Co. was that equity investor.
That misunderstanding, reinforced when it was repeated by Ms. Kreitman in a phone call with another ACA executive, was never corrected by anyone at Goldman or Paulson & Co., the SEC said.
Mr. Tourre and Paulson executive Paolo Pellegrini testified that they had told Ms. Schwartz that the hedge fund intended to take a short investment in Abacus. And none of the SEC's witnesses, including Ms. Schwartz and Ms. Kreitman, testified that they were told by Mr. Tourre that Paulson was making a long investment.
By 2007, Paulson & Co.'s call that the mortgage market would soon collapse was well-chronicled in the business press and the talk of Wall Street.
Several emails from Mr. Tourre to his girlfriend, Marine Serres, a Goldman saleswoman at the firm's London office, revealed that Mr. Tourre shared some pessimism about the market.
At his trial, Mr. Tourre translated what he wrote, partly in French, to Ms. Serres: "The entire building is at risk of collapse at any moment. Only potential survivor, the fabulous Fab (as Mitch would kindly call me, even though there is nothing fabulous about me…) standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all the implications of these monstrosities."
Mr. Tourre called the note a "silly romantic email to my girlfriend, sent as I was very stressed that day," and said it was referencing a newspaper article he had forwarded to Ms. Serres.
But the SEC seized on the email, which was sent in January 2007, as evidence Mr. Tourre knew he was deceiving investors. He was paid $1.7 million that year.
On the witness stand, Mr. Tourre cut a much more sympathetic figure. He described his modest upbringing and unlikely arrival on Wall Street more than a decade ago, and explained to the jurors why they, and he, were in court on a late July afternoon: "I'm here to tell the truth and clear my name."
[h=3]Full Coverage: The Tourre Trial[/h]
Write to Chad Bray at [email protected], Justin Baer at [email protected] and Jean Eaglesham at [email protected]
AFP/Getty Images Former Goldman Sachs trader Fabrice Tourre arrives at court on Thursday.
[h=3]Case Will 'Stay With Me Forever'[/h] Tourre, in interviews before the verdict, said he was resigned to his legacy as the face of the mortgage crisis. Read the article.
The panel of nine jurors reached their verdict during the second day of deliberations, finding Mr. Tourre liable on six of seven claims that he violated federal securities law.
"It was a long, slow process," said juror Beth Glover, a 47-year-old Episcopal priest, after the verdict.
The victory is an important one for the Securities and Exchange Commission, which has struck out in past efforts to make a convincing case to jurors in high-profile trials against individuals.
"We're obviously gratified with the jury's verdict and we appreciate their hard work," said Matthew Martens, the lead SEC lawyer, after the verdict was delivered.
[h=3]The Case Against Goldman and Fabrice Tourre[/h] See a timeline of key events in the civil-fraud saga against Goldman Sachs and Fabrice Tourre.
[h=3]Key Players in the Trial[/h]
Andrew Ceresney, co-director of the SEC's Division of Enforcement, added in a statement: "We will continue to vigorously seek to hold accountable, and bring to trial when necessary, those who commit fraud on Wall Street."
John "Sean" Coffey, Mr. Tourre's co-counsel, declined to comment.
Goldman Sachs, in a statement, said: "As a firm, we remain focused on being more transparent, more accountable, and more responsive to the needs of our clients."
For the SEC, the verdict offers a rebuttal to critics who have accused the agency of seeking to make fairly junior employees, such as Mr. Tourre, scapegoats for Wall Street's wider failings.
The civil trial, which began July 15, led jurors through a dense fog of industry jargon, to a time on Wall Street when one era was drawing to a close and the dark clouds of another loomed. The SEC's case centered on a complex mortgage-linked deal between sophisticated investors, and whether Mr. Tourre misled them on the role New York hedge fund Paulson & Co. would play in that instrument.
SEC officials will see their success in such a landmark and controversial lawsuit as vindication of their post-crisis enforcement efforts, including a push to ensure individuals are held to account alongside their employers, according to people close to the agency.
As part of those efforts, the agency has charged 157 firms and individuals to date, securing $2.68 billion in penalties and other sanctions, according to its website. The tally includes 66 Chief Executive Officers and other senior corporate officers.
Mr. Tourre, who left Wall Street to pursue a doctorate in economics, may face a fine and a ban from the securities industry.
The jury's decision on Thursday closes out one of the government's biggest efforts to find individuals at fault for the worst crisis in decades.
The SEC’s civil fraud case against Goldman Sachs mortgage trader Fabrice ‘Fabulous Fab’ Tourre centers on the use of a complex derivative investment known as “synthetic CDO.” What in the world is that? WSJ’s Liz Rappaport explains.
In April 2010, the SEC sued Mr. Tourre and Goldman for securities fraud, alleging they misled investors in a collateralized debt obligation called Abacus 2007-AC1. The action stunned the industry, drew Goldman into a bitter public backlash and shattered the once-promising career of Mr. Tourre.
Goldman settled within months, agreeing to pay a $550 million settlement without admitting or denying wrongdoing.
The SEC offered Mr. Tourre a deal, too, giving the former trader a day to accept a fine and a two-year ban from the securities business, people familiar with the matter said. He rejected the offer, vowing to fight all the way to federal court.
Abacus's origin can be traced to 2006, when Paulson & Co. went to Goldman with a trading idea to bet against subprime mortgages. Mr. Tourre had suggested creating a deal that would allow investors to place opposing bets on a basket of mortgage bonds.
Goldman set out to enlist a company to select those bonds, giving investors confidence that mortgages within that basket were neither too good nor too risky. By January, ACA Financial Guaranty Corp., a bond insurer that was one of Goldman's biggest CDO clients, appeared eager to take on the assignment, emails and court testimony showed.
What happened next helped define some of the biggest winners and losers of the crisis.
In its investigation, the SEC unearthed emails, phone calls and meetings it argued showed that Mr. Tourre led ACA executives to believe Paulson & Co. would be making a long investment in Abacus, betting its value would rise.
They also accused him of hiding the hedge fund's role in helping select the mortgage bonds from investors that would eventually bet on the deal.
The agency zeroed in on a Jan. 10, 2007 email Mr. Tourre had sent to an ACA executive, Laura Schwartz, suggesting an investor had already committed to buying the equity in Abacus. Days later, the SEC contended, Ms. Schwartz wrote a note to another Goldman salesperson, Gail Kreitman, suggesting she believed Paulson & Co. was that equity investor.
That misunderstanding, reinforced when it was repeated by Ms. Kreitman in a phone call with another ACA executive, was never corrected by anyone at Goldman or Paulson & Co., the SEC said.
Mr. Tourre and Paulson executive Paolo Pellegrini testified that they had told Ms. Schwartz that the hedge fund intended to take a short investment in Abacus. And none of the SEC's witnesses, including Ms. Schwartz and Ms. Kreitman, testified that they were told by Mr. Tourre that Paulson was making a long investment.
By 2007, Paulson & Co.'s call that the mortgage market would soon collapse was well-chronicled in the business press and the talk of Wall Street.
Several emails from Mr. Tourre to his girlfriend, Marine Serres, a Goldman saleswoman at the firm's London office, revealed that Mr. Tourre shared some pessimism about the market.
At his trial, Mr. Tourre translated what he wrote, partly in French, to Ms. Serres: "The entire building is at risk of collapse at any moment. Only potential survivor, the fabulous Fab (as Mitch would kindly call me, even though there is nothing fabulous about me…) standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all the implications of these monstrosities."
Mr. Tourre called the note a "silly romantic email to my girlfriend, sent as I was very stressed that day," and said it was referencing a newspaper article he had forwarded to Ms. Serres.
But the SEC seized on the email, which was sent in January 2007, as evidence Mr. Tourre knew he was deceiving investors. He was paid $1.7 million that year.
On the witness stand, Mr. Tourre cut a much more sympathetic figure. He described his modest upbringing and unlikely arrival on Wall Street more than a decade ago, and explained to the jurors why they, and he, were in court on a late July afternoon: "I'm here to tell the truth and clear my name."
[h=3]Full Coverage: The Tourre Trial[/h]
- Jury Begins Deliberations (July 31, 2013)
- Jurors Hear Closing Arguments (July 30, 2013)
- Judge Sets the Pace in Tourre Trial (July 29, 2013)
- Trial Heads Closer to Finish (July 29, 2013)
- Tourre Says Others Voiced No Qualms (July 26, 2013)
- Emails Focus of Tourre Testimony (July 25, 2013)
- Tourre Takes the Stand (July 24, 2013)
- Witness Says She Was Misled About Deal (July 23, 2013)
- Defense Zeroes In on Key Witness (July 22, 2013)
- Trial Sees Ex-Goldman Saleswoman Bolster SEC's Case (July 19, 2013)
- SEC Strikes at Tourre Defense (July 18, 2013)
- Witness Says He Thought SEC Tried to 'Trick' Him (July 17, 2013)
- Goldman's Presence Will Be Felt at Tourre Trial (July 11, 2013)
- Judge Allows 'Fabulous Fab,' Other Emails Into SEC Trial (July 11, 2013)
- Judge Won't Block Use of Recorded Call in Trial (April 26, 2013)
- Ex-Trader Alters Legal Team (May 13, 2013)
- From 'Fabulous Fab' to Grad Student (April 25, 2013)
- Goldman Settles Its Battle With SEC (July 15, 2010)
Write to Chad Bray at [email protected], Justin Baer at [email protected] and Jean Eaglesham at [email protected]