The U.S. Securities Exchange Commission said it will call Tourre, the former Goldman Sachs Group Inc (NYSE:GS) trader, in the highest-profile trial to come out of SEC’s investigation of the 2008 financial crisis. Tourre, who is the only individual Goldman Sachs executive to face a civil fraud case, might say during his trial today that he was doing only what was best for his firm.
The case relates to one of the most prominent actions stemming from the 2008 crisis, and centers on the claim that Mr. Tourre and Goldman Sachs Group Inc (NYSE:GS) failed to warn investors that a hedge fund run by billionaire John A. Paulson helped construct the mortgage security and then bet against it.
Tourre could argue he was just a cog in the machine
Tourre is to testify before a Manhattan Federal Court about his role in structuring and selling a 2007 mortgage-backed investment that lost a group of investors about $1 billion when the mortgage market crashed.
Tourre could also argue he was just a cog in the machine, and that those who lost money were sophisticated investors who made their own bad decisions. He also challenged the idea that they did not know Paulson was betting against them.
Tourre could also plead his lack of stature
The investment Tourre helped create, the Abacus 2007-AC1, was what’s known as a synthetic CDO — meaning it was built through an insurance contract that allows clients to bet for or against its success. The SEC is accusing Tourre of encouraging clients to bet on the underlying mortgage assets, while concealing a relevant fact: John A. Paulson’s hedge fund, which helped construct the deal, was betting against them.
According to Jacob Frenkel, a former SEC lawyer not involved in the case, Tourre’s best defense may be to emphasize his relative lack of stature at Goldman Sachs Group Inc (NYSE:GS) at the time of the Abacus deal.
Tourre’s lawyer has contended that Tourre’s e-mails to his girlfriend in 2007 showed he was uncertain about what he was doing and provided “an easy mark, a scapegoat” for the SEC.