Tourre Denies Wrongdoing, Says He Knew Paulson Might Short CDO

Jul 20 2010 | 12:39pm ET

The Goldman Sachs executive accused of defrauding investors in a collateralized debt obligation has denied any wrongdoing and called for the case against him to be dismissed.

Fabrice Tourre, the Goldman vice president who counted hedge fund Paulson & Co. among his clients and who is accused of misleading investors in the CDO about Paulson’s alleged role, filed his response to the SEC’s charges yesterday. He rejected the regulator’s charge that the marketing materials for the CDO, called ABACUS-2007-AC1, contained “incomplete information,” as Goldman itself acknowledged in its $550 million settlement last week.

Tourre, who is currently on administrative leave from Goldman, blasted the SEC’s evidence as “improperly vague, ambiguous and confusing,” and turned around to accuse the regulator of omitting “critical facts.” The 13-page reply also said the SEC failed to show that Tourre sought to defraud investors.

Tourre, whose legal bills are being footed by his employer, also pointed a finger at Goldman.

“Mr. Tourre, a French citizen and engineer by training, 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.”

The SEC accuses Tourre of misleading investors in the CDO, which was allegedly structured and marketed on behalf of Paulson. In particular, the regulator says the Goldman executive failed to disclose Paulson’s role in picking the securities that went into the CDO, which cost investors some $1 billion and made the hedge fund an equal amount, or that the hedge fund planned to short the CDO through credit default swaps bought from Goldman.

Tourre acknowledged in the filing that he knew Paulson “was considering taking some or all of the short side” of the CDO, but noted that the marketing materials made clear that a Goldman affiliate held a short interest in it and could transfer that interest.

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