U.S. SEC to jurors: Don't follow Tourre to 'land of make believe'

By Nate Raymond

NEW YORK (Reuters) - A lawyer for the SEC urged jurors on Tuesday not let Fabrice Tourre deceive them the same way the former Goldman Sachs trader misled investors in a mortgage deal that went bad in the financial crisis.

On the final day of a civil fraud trial in Manhattan federal court that has run for more than two weeks, Securities and Exchange Commission lawyer Matthew Martens told jurors that the one-time Goldman Sachs Group Inc vice president sold investors on a "land of make believe" that cost them $1 billion.

"Now Mr. Tourre wants you to live in that land as well," Martens said.

The statements came in the SEC's closing salvo in what has become the highest-profile trial stemming from its investigations of the 2008 financial crisis.

Jurors are expected to begin deliberating Wednesday in the case, which centers on a synthetic collateralized debt obligation based on subprime mortgage securities known as Abacus 2007-AC1.

The SEC sued Tourre in 2010, accusing him of not telling investors in Abacus that hedge fund of billionaire John Paulson helped pick the mortgage securities in the deal or that the hedge fund planned to bet against Abacus.

The SEC also accused Tourre of misleading ACA Capital Holdings Inc, a company hired to select the securities, into thinking Paulson & Co Inc was an equity investor in the synthetic collateralized debt obligation.

Paulson made around $1 billion shorting, or wagering against, Abacus, while investors lost about the same amount.

Tourre, who denies wrongdoing, faces penalties and a lifetime ban from the securities industry.

In closing arguments by the defense, lawyer Sean Coffey depicted his client as a "remarkable young man" facing an "unjust charge."

Coffey said that telling investors ACA selected the securities was not a "half truth," as Martens had put it earlier on Tuesday.

It was common at the time not to mention the role investors played in putting together collateralized debt obligations, Coffey said. Instead, only the role of portfolio selection agents like ACA was highlighted, he said.

Coffey said it also was not believable that ACA did not know Paulson would short Abacus. Coffey pointed to a series of news reports about Paulson's strategy of betting against the U.S. housing market, some of which were received by executives at ACA.

"This company lived or died by how it monitored the subprime housing market," Coffey said.

Nor was the information about Paulson's position material to ACA, he said. He pointed to the testimony of Paolo Pellegrini, a former Paulson & Co managing director who during combative questioning by the SEC said he told ACA about the hedge fund's plan to short the deal.

Tourre, dressed on Tuesday in a black suit and purple tie, proceeded to trial alone after Goldman Sachs, initially a co-defendant, agreed in July 2010 to pay $550 million to settle the case without admitting or denying wrongdoing.

Tourre sat one seat closer to jurors than he had normally during the trial, with a computer screen that normally might obstruct their view of him placed on the floor as Coffey argued his defense.

"It's in your power to clear his name," Coffey told jurors.

Tourre's defense team decided on Monday to call no witnesses, which legal experts said was a sign that they believed that the SEC had failed to prove its case.

In summing up the SEC's case on Tuesday, Martens said Tourre engaged in "a $1 billion fraud to feed Wall Street greed."

Martens called the alleged fraud "very simple" and urged jurors to look at the mountains of emails introduced as evidence.

"Documents can't lie," he said. "Witnesses can."

He repeatedly pointed to a January 10, 2007 email Tourre sent to Laura Schwartz, an ACA executive who worked on Abacus and who testified she believed Paulson would be an equity investor in the deal.

The email called Paulson the "transaction sponsor" and said the riskiest piece of the CDO was "pre-committed," phrases Martens said misled ACA into believing Paulson was an investor in the deal.

Tourre, who left Goldman in 2012, during testimony last week said the description of it as pre-committed "wasn't accurate at the time."

Coffey, though, said the email was quickly followed by a term sheet among other documents that described the deal accurately.

He said his client was a 28-year-old newly minted vice president at Goldman who repeatedly kept his superiors in the loop about Abacus.

"He was part of the fabric of a large global investment bank," Coffey said.

He urged jurors to reject the argument that Abacus was designed to fail, calling it "one of the strongest portfolios ACA ever constructed." It only failed after ratings downgrades that affected all CDOs in summer 2007, he said.

"It went off the cliff with everything else," he said.

Tourre had not just sought to mislead investors but also the five women and four men on the jury, Martens said.

For years, Tourre said he couldn't remember why he described a meeting he attended between ACA and Paulson as "surreal," yet after being shown documents by his lawyer last week, said it referred to Paulson's separate strategy of betting against Wall Street banks at the time.

"He got on the witness stand and tried to deceive you," Martens said.

Coffey rejected that charge, saying it is "not unusual at all to show a document to a witness to refresh their recollection."

The case is SEC v. Tourre, U.S. District Court, Southern District of New York, No. 10-03229. (Reporting by Nate Raymond; Editing by Eddie Evans and Steve Orlofsky)