A former Goldman Sachs trader who earned the nickname "Fabulous Fab" was found liable today in a fraud case brought by federal regulators in response to the 2007 mortgage crisis that helped push the US into recession.
A jury reached the verdict at the civil trial in Manhattan federal court of Fabrice Tourre, a French-born Stanford graduate described by Securities and Exchange Commission lawyers as the face of "Wall Street greed."
Tourre's attorneys portrayed him as a scapegoat in a downturn caused by larger economic forces.
Tourre, 34, found liable in six of seven SEC fraud claims. He faces potential fines and a possible ban from the financial industry. The exact punishment will be determined at a future proceeding.
The SEC had accused Tourre of misleading institutional investors about subprime mortgage securities that he knew were doomed to fail, setting the stage for a valued Goldman hedge fund client, Paulson & Co Inc, to secretly bet against the investment.
The manoeuvre ended up making USD 1 billion for the hedge fund and its wealthy president, John A. Paulson, and millions of dollars in fees for Goldman. The SEC also sought to show that it helped earn Tourre a bonus that boosted his salary to USD 1.7 million in 2007.
On the witness stand, the SEC lawyers confronted Tourre with a January 2007 email it said deliberately misled another institutional investor about Paulson's short position in the investment called Abacus 2007-AC1.
Asked repeatedly if the information in the email was "false," Tourre responded, "It was not accurate." He added: "I wasn't trying to confuse anybody; it just wasn't accurate at the time."
In closing arguments, SEC lawyer Matthew Martens called Tourre's testimony "surreal, imaginary, unreal, dreamlike" 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 Tourre not liable for his actions," the SEC lawyer said.
Tourre's attorney, John Coffey, countered that the government had "unjustly accused him of wrongdoing."
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.
The civil case had been called the most significant legal action related to the mortgage securities meltdown, but it lacked the drama and high stakes of white-collar criminal cases. Much of the testimony was devoted to the intricacies of synthetic collateralized debt obligations, or CDOs, a complex type of investment central to the case.
