NEW YORK — The Securities and Exchange Commission on Tuesday made a final push to convince a federal jury that former Goldman Sachs trader Fabrice Tourre defrauded investors of $1 billion during the lead up to the 2008 financial crisis by feeding them “half truths.”
Tourre, nicknamed “fabulous Fab” by a colleague, was not a low-level scapegoat as his lawyers claim, the SEC argued. He was a cunning Wall Street executive who tricked investors into taking part in a shoddy mortgage deal that was secretly designed to fail, profited handsomely from it and then tried to reinvent the narrative for the jury to stay out of trouble, said Matthew Martens, the SEC’s lead attorney.
“Mr. Tourre was not some entry-level rookie,” Martens said. “He was all over this deal. . . . It was a $1 billion fraud to feed Wall Street greed.”
The defense team accused the SEC of cherry-picking from various e-mails and testimony as it tried to put together a case that “doesn’t add up.” Tourre’s lawyers have portrayed their client as a math whiz who stumbled into an entry-level job at Goldman and cobbled together the deal at age 28 with oversight from his superiors. Even after Goldman settled with the SEC in 2010 for $550 million, Tourre refused to do the same, and he previously told the jury that he has done nothing wrong.
Tourre “refuses to yield to a powerful government agency” that has falsely accused him of wrongdoing, invaded his privacy and ruined his career, his lawyer Sean Coffey said.
The closing arguments in the packed Manhattan courtroom came after about two weeks of testimony ended abruptly Monday with the defense team declining to call any witnesses — a move widely interpreted by legal experts as a show of confidence. Tourre, a Frenchman who is an engineer by training, faces a fine and could be banned from the financial industry if found guilty in the civil case.
A prominent hedge fund, Paulson & Co., hired Goldman to create a mortgage product so it could bet against the housing market in 2007. But the SEC alleges that Tourre defrauded some investors by not telling them about Paulson’s strategy, or informing them that Paulson picked securities that were included in the mortgage portfolio. When the housing market tanked, the hedge fund made $1 billion, while other investors lost about that much.
Key to the SEC’s case was Laura Schwartz, a former executive at ACA Management. Goldman hired ACA to select the mortgage securities because key investors insisted on having an independent third party in that role, the government said. But Tourre duped Schwartz by not revealing Paulson’s role in the deal, according to the SEC.
Schwartz testified that ACA would not have worked with Goldman if she had known Paulson was betting against the housing market.
But Tourre’s team picked apart Schwartz’s account, saying Paulson’s strategy was well known and widely reported. Schwartz was a seasoned professional in a well-established firm of more than 100 employees, Coffey said. It is “not credible” to believe ACA was not aware of Paulson’s intentions, he said.
Coffey reminded jurors Tuesday that Schwartz testified that ACA determines the make-up of its portfolios independent of input from others. Those statements, Coffey said, suggest that Tourre’s marketing materials did not mislead anyone by failing to mention Paulson’s role. Paulson “had no veto power over ACA selections,” he said.
The portfolio marketed by Tourre was relatively strong compared with others in the same genre, he said. A key reason that the mortgage deal failed is that the credit rating agencies downgraded the ratings for such securities across the board, Coffey said. They all “went off the cliff” together, he said.