Monday, 28 July 2014
Last updated 2 hours ago
Jul 29 2013 | 11:25am ET
Former Goldman Sachs executive Fabrice Tourre completed his testimony at his civil fraud trial on Friday, telling the jury that will decide his fate that he never intended to mislead anyone about hedge fund Paulson & Co.'s role in a controversial collateralized debt obligation.
In his third day on the stand, under cross-examination by his own lawyers, Tourre said that at all times he acted in accord with standard industry practices on ABACUS-2007-AC1, and that no one at Goldman ever told him to disclose Paulson's role in selecting the securities that went into that deal or expressed concerns about that lack of disclosure.
The Securities and Exchange Commission, which brought the case against Tourre, alleges that the mid-level employees intentionally misled investors and the deal's insurer about Paulson's role and plans. The hedge fund, which has not been accused of any wrongdoing, shorted the CDO and made a huge profit; several witnesses for investor and insurer ACA Financial Guaranty testified that they were under the impression that Paulson would invest on the long side of the CDO.
But the SEC, which is expected to rest its case today, has not yet called a witness to testify that Tourre specifically told them that Paulson would be a long investor; witnesses have so far focused on the fact that Tourre never corrected their misapprehension.
For their part, Tourre and his lawyers have focused on how a sophisticated investor like ACA could be unaware of Paulson's negative views on the mortgage market. And Tourre called into question the testimony of a key witness, former ACA executive Laura Schwartz.
Under questioning by SEC lawyer Mathew Martens last week, Tourre admitted that his statement that the "first loss tranche," the riskiest piece of the ABACUS transaction, was "pre-committed" was "not accurate." Schwartz testified that she took this to mean that Paulson was an equity investor in the deal. She also testified that the term sheet for ABACUS listing the first-loss tranche as "NA" mean it was "not available," because Paulson had bought it.
This was incorrect, according to Tourre: "NA" meant "not applicable… because it was never issued" and "never intended to be issued."
Tourre told the jury that he was on trial "because I haven't done anything wrong. I'm here literally to tell the truth and clear my name." For its part, Goldman settled the case for $550 million—without admitting wrongdoing.
Tourre was placed on paid, and then unpaid, leave from Goldman after the SEC brought its case. He said he volunteered in East Africa and began graduate school in Chicago after "my nine-year professional career was destroyed." SEC lawyer Martens later asked how much Goldman had paid Tourre during his leave, and the 34-year-old answered he had received his base salary of £480,000, or US$750,000.
Tourre said he had no choice but to go on leave. "I was hoping to go back to Goldman Sachs and in the meantime make the SEC understand this transaction," he said.
After Tourre left the stand, jurors had to endure two hours of videotaped testimony by two ABACUS investors which left some on the verge of falling asleep. When at one point, one of the videos began to repeat, U.S. District Judge Katherine Forrest joked, "let's not watch it twice."
Jul 8 2014 | 10:48am ET
The surge in derivatives regulation is among the most complex challenges facing the financial services industry today. Northern Trust’s Joshua Satten recently spoke with FINalternatives to share insights into the challenges presented by new regulation and explore how the industry is responding. Read more…