Ex-Paulson Exec Has Trouble Defining 'CDO' At Tourre Trial

Jul 17 2013 | 9:21am ET

Former Paulson & Co. executive Paolo Pelligrini's testimony at the trial of former Goldman Sachs banker Fabrice Tourre got off to an odd start on Monday when he stumbled over the definition of 'CDO.'

“I’m not sure,” Pellegrini said in response to a question from Matthew Martens, lead lawyer for the Securities and Exchange Commission in its case against Tourre, after what the New York Post characterized as “a long, uncomfortable pause.”

“It may stand for collateralized debt obligation, but I’m not sure.”

CDOs are at the heart of the SEC's civil suit against Tourre. The regulator alleges that Paulson, which has not been accused of any wrongdoing, had a hand in choosing the mortgage-backed securities that went into a Goldman CDO called Abacus. Paulson subsequently made a killing betting against the CDO. The SEC alleges Tourre lied to investors about Paulson's involvement in the construction of the product. Goldman has already paid $550 million to settle with the SEC.

Martens at one point asked Judge Katherine Forrest if he could treat Pellegrini as a hostile witness, a request the judge denied but said she might allow later.

Pellegrini testified that Paulson decided to short the mortgage-backed securities in 2006 based on its belief that “there would be a lot of mortgage defaults.”

Tourre's defense lawyer, Pamela Chepiga, told jurors her client "never misled anyone," and accused authorities of attempting to make him a scapegoat.

Pellegrini will resume testifying Wednesday. The trial is expected to last three weeks.


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