By Zachary A. Goldfarb
Washington Post Staff Writer
Tuesday, July 20, 2010; A15
Fabrice Tourre -- also known as "Fabulous Fab," the Goldman Sachs vice president accused of committing fraud by the Securities and Exchange Commission -- asked a federal court Monday to dismiss a government lawsuit alleging that he sold to investors a subprime mortgage security that was secretly designed to fail.
Last week, Goldman agreed to pay $550 million to settle fraud charges, promising to express "regret" for including "incomplete information" in marketing materials for the security. But, according to a response filed Monday to the SEC complaint, Tourre "specifically denies that he made any materially misleading statements or omissions or otherwise engaged in any actionable or wrongful conduct."
Tourre assembled the deal that prompted the fraud suit by the SEC. Despite his pivotal role in the transaction, his lawyers say that, as a French citizen and engineer by training, Tourre could not have been expected to make decisions about what had to be told to investors.
He "reasonably relied on Goldman Sachs' institutional process to ensure adequate legal review and disclosure of material information, and cannot be held liable for any alleged failings of that process," according to the court filing.
Still, the lawyers say that the Goldman executive prepared for investors a "a robust offering document . . . which contained all relevant information relating to the transaction."
Deserved or not, the salesman of exotic subprime mortgage securities quickly became one of the faces of the financial crisis. In one e-mail released by the SEC, Tourre boasted to his girlfriend that he was the "only potential survivor, the fabulous Fab . . . standing in the middle of all these complex, highly leveraged, exotic trades he created without necessary understanding all of the implications of the monstruosities!!!"
When the SEC case was filed in April, Tourre worked in Goldman's London office. He is on paid leave from the firm, which is covering his legal bills.
The crux of the case alleges that a hedge fund called Paulson & Co. was looking for a way to bet on a drop in the housing market and turned to Goldman to create a financial product that would allow such a wager. The fund, led by hedge fund manager John Paulson, essentially bought insurance against the investment -- much like taking out an insurance policy on a person who secretly has a potentially deadly disease.
But Paulson also helped assemble that product by selecting individual securities to include in it.
These were mortgage-related securities that Paulson thought were likely to lose value. The SEC says that the fund's motivations and role were concealed when Goldman marketed and sold the investment, known as Abacus 2007-AC1, to clients who hoped it would gain value. Paulson has not been accused of any wrongdoing.
The investment ultimately lost virtually all its value, costing investors $1 billion.
Tourre's only public appearance so far was an April 27 public flogging of Goldman executives before a Senate investigative committee probing the firm. At the hearing, Tourre was adamant about his innocence. "I deny -- categorically -- the SEC's allegation. And I will defend myself in court against this false claim," he told lawmakers.