In federal court, both the Securities and Exchange Commission and former Goldman Sachs Group (GS) vice president Fabrice Tourre have both rested their case in the civil trial against the bond trader. Tourre is accused of MBS fraud for his alleged involvement in a failed $1 billion investment connected to the collapse of the housing market. After the SEC finished presenting its evidence, U.S. District Judge Katherine Forrest turned down Tourre’s bid to have the securities case against him thrown out. He denies wrongdoing and says that his career is in now in shambles.
According to the regulator, Tourre purposely misled participants in the Abacus 2007-AC about the involvement of John Paulson’s hedge fund Paulson and Co. The Commission contends that Tourre concealed that Paulson helped select the portfolio of the subprime MBS underlying Abacus—a $2 billion offering linked to synthetic collateralized debt obligations. The latter then shorted the deal by betting it would fail.
The SEC’s complaint points to Tourre as primarily responsible for the CDO, which it says says he devised and prepped marketing collateral for and was in direct contact with investors. The regulator believes that by failing to disclose Paulson’s role, Tourre broke the law. They also contend that instead the bond trader instead told customers that as an Abacus investor, Paulson’s hedge fund expected the securities to go up.
Tourre also is accused of misleading ACA Capital Holdings, which Goldman retained to supervise the deal, about Paulson’s role. ACA would go on to invest in Abacus and insure it.
When the mortgage securities underlying the Abacus became toxic, its investors lost $1 billion. Meantime, the short positions by Paulson made about the same.
Testifying on his own behalf at the civil trial, Tourre told jurors that after the SEC filed its securities fraud case against him in 2010, for over a year Goldman Sachs made him take a leave of absence but kept paying his $738,000 base salary. In 2007, Tourre said, his salary and bonus was $1.7 million, which was tied to profits he made for the firm.
Goldman has already paid $550 million to settle SEC charges against it over the ABACUS 2007-AC1 debacle. The Commission accused the financial firm of misleading investors about the subprime mortgage product.
As part of settling, the financial firm admitted that its marketing materials for the subprime product had incomplete data and it made a mistake when stating that ACA chose the reference portfolio without revealing Paulson’s part in the selection process or that the latter’s interests were counter to that of the collateralized debt obligation investors.
Unfortunately, when the housing market failed, a lot investors that placed their money in subprime mortgage products suffered huge losses, many of which were a result of broker misconduct, fraud, misrepresentations, omissions, and other wrongdoing. At Shepherd Smith Edwards and Kantas, LTD, LLP, our mortgage-backed securities lawyers have been helping institutional and individual investors recoup these losses.
Fabrice Tourre tells jurors about paid leave at Goldman after SEC suit, The Washington Post, July 26, 2013
SEC fraud case against ex-Goldman trader Tourre in homestretch, Reuters, July 29, 2013
More Blog Posts:
SEC’s Antifraud Claim Against Goldman Sachs Executive Fabrice Tourre Won’t Be Reinstated, Says District Court, Institutional Investor Securities Blog, December 3, 2012
Goldman Sachs Settles SEC Subprime Mortgage-CDO Related Charges for $550 Million, Stockbroker Fraud Blog, July 30, 2012
Investor in Goldman Sachs Special Opportunities Fund 2006 to Get $2.5M FINRA Arbitration Award For Allegedly Unsuitable Investment, Stockbroker Fraud Blog, May 27, 2013