Jury selection commences July 15 for the trial of a former Goldman Sachs Group Inc (NYSE:GS) vice president, Fabrice Tourre.
It’s a case of lies, trickery, deception and Wall Street greed.
That’s what the Securities and Exchange Commission told a federal court jury yesterday as it opened its case against former Goldman Sachs Group Inc (NYSE:GS) banker Fabrice Tourre or “Fabulous Fab” as he was known.
Securities and Exchange Commission Claims
The funky and complex mortgage securities Tourre was shopping are known as synthetic collateralized debt obligations, or CDOs. The banker sold them without telling buyers that hedge fund heavyweight John Paulson was involved in building the CDOs — and bet against their success, it is alleged. Buyers who bet on the synthetic CDOs success lost $1 billion when the CDOs failed, the SEC claims.
Goldman Sachs Settles With SEC
The regulator also claimed Goldman Sachs lied to investors — but the banking behemoth paid $550 million to settle the SEC charges, without admitting any guilt. Tourre maintains his innocence.
Banker’s Lawyers Shoot Back
The banker’s lawyers shot back that Tourre, who was 28 when he was selling the CDOs, known as Abacus 2007, never lied to anyone and was dealing with sophisticated investors who knew they were tangling with the likes of Paulson.
Tourre Only Individual Goldman Executive to Face an SEC Lawsuit
The Financial Times noted that what is more puzzling is that Mr. Tourre is the only individual Goldman Sachs Group Inc (NYSE:GS) executive to face an SEC lawsuit. His department was among the most profitable and fast-growing at Goldman during the period under examination. In emails surveyed by the SEC, he pitched ideas to his bosses about using CDOs to allow financial institutions to short the housing market in just the way Mr. Paulson did. While it is possible that he broke rules, Tourre seems an unlikely lone wolf.
Tourre was a small cog in a vast machine. Goldman has already settled SEC charges relating to Abacus, without admitting liability, by paying $550 million. But the CDO business went beyond one Wall Street firm. Between 2005 and 2007, investment banks issued $1,100 billion in CDOs. Securities law extended to derivatives in 2000 permitted banks to treat buyers as counterparties, to whom they owed no duty of care. It is perhaps no coincidence that in 2008, losses from CDOs almost broke the financial system.
Tourre’s pre-crisis bragging may represent much of what was wrong about Wall Street. But his case also highlights how much remains unfixed. Goldman Sachs Group Inc (NYSE:GS) has been let off the Abacus case with the financial equivalent of a heavy slap on the wrist – an eloquent demonstration of the fact that large financial institutions remain “too big to jail”. Many other banks have gone uncollared. However Tourre’s case ends, justice cannot be said to have been done.