Tourre's Lawyers Seek To Undermine Key Prosecution Witness

Jun 28 2013 | 12:14pm ET

Lawyers for the former Goldman Sachs executive accused of defrauding investors in a Paulson & Co.-linked collateralized debt obligation and the Securities and Exchange Commission are sparring over a key witness in his upcoming trial.

The SEC plans to call Laura Schwartz, who worked at ACA Financial Guaranty, which both insured and invested in the CDO, ABACUS-AC1. Tourre's lawyers argue that she is under investigation herself over a different CDO.

Schwartz has received a Wells notice from the SEC in that matter, indicated that the regulator is preparing to bring charges against her. Tourre's lawyers have subpoenaed both Schwartz and the SEC, seeking documents about that investigation for use at Tourre's trial, which begins on July 15, and plan to argue that her own legal problems would "shade her testimony to support the merits of her own case."

If the SEC later dropped its probe of her, it could lead to questions about "what she was willing to do at trial in order to avoid being charged."

U.S. District Judge Katherine Forrest is set to rule on the requests prior to that date.

According to the SEC, Schwartz was Tourre's "primary point of contact" at ACA. He is accused of misleading the firm about Paulson's role in selecting the securities that went into the $1 billion CDO, which it would make a killing shorting.

Paulson has not been accused of any wrongdoing in the case. Goldman settled the allegations against it for $550 million.

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