By Nate Raymond and Jonathan Stempel
NEW YORK, March 12 A U.S. judge on Wednesday
ordered former Goldman Sachs Group Inc trader Fabrice
Tourre to pay more than $825,000 after a jury found him liable
for defrauding investors in a subprime mortgage product that
failed during the financial crisis.
The decision by U.S. District Judge Katherine Forrest in
Manhattan came in one of the prominent Wall Street cases linked
to the crisis, and one of the few in which an individual was
held personally responsible for wrongdoing.
Tourre was ordered to pay $650,000 in civil fines, and give
up an additional $175,463 bonus plus interest linked to the
transaction at the heart of the U.S. Securities and Exchange
The total payout fell below the roughly $1.15 million,
including a $910,000 fine, that the SEC had sought.
But the judge said a stiff sanction for the 35-year-old
Frenchman was appropriate, saying Tourre's fraud lasted for
several months and noting what investigators said were his false
emails and misleading materials sent to investors.
"He has shown no remorse or contrition," Forrest added,
referring to Tourre. The judge also forbade Goldman from paying
Goldman in July 2010 reached a related $550 million
settlement with the SEC. It did not admit wrongdoing but
acknowledged and expressed regret that its marketing materials
SEC enforcement chief Andrew Ceresney welcomed Wednesday's
decision, including penalties he characterized as "significant."
"The ruling reflects the SEC's intent of pursuing meaningful
sanctions to punish individuals responsible for misconduct and
deter others from violating the federal securities laws," he
said in a statement.
Tourre resigned from Goldman in December 2012, and is
pursuing a doctorate in economics at the University of Chicago.
In a statement, he said he was "deeply grateful for the
unwavering support of my family and friends as I consider
potential next steps in the legal process."
SYMBOL OF THE MELTDOWN
Tourre became a symbol of the financial meltdown after the
SEC sued him and Goldman in 2010 for misleading investors in a
synthetic collateralized debt obligation, or CDO, linked to
mortgages called Abacus 2007-AC1.
He became widely known as "Fabulous Fab" after using that
nickname in an email cited in the SEC lawsuit.
The SEC accused Tourre of concealing from investors how
Paulson & Co, the hedge fund of billionaire John Paulson, had
helped put Abacus together and had bet it would fail.
It also accused Tourre of misleading ACA Capital Holdings
Inc, which helped choose Abacus assets, into thinking Paulson
would be an equity investor in the CDO, rather than bet the
other way as part of a massive wager against subprime mortgages.
Paulson, meanwhile made about $1 billion by shorting Abacus,
while investors lost the same amount, the SEC said.
"The fraud on ACA was critical to making the transaction
work; without ACA as portfolio selection agent, Goldman would
not have been able to convince others to invest in the equity of
the transaction," Forrest wrote.
In August, a federal jury found Tourre liable on six of
seven civil charges related to Abacus.
Tourre had been slated to teach an honors economics class
this spring, but a University of Chicago spokesman on March 4
said those plans had been scrapped. No reason was given.
SENDING THE RIGHT MESSAGE
Tourre's lawyers had fought against any ban on Goldman
reimbursing their client, saying it would be unprecedented, even
as they said he had every intention of paying any penalty out of
his own pocket.
The judge, however, said letting Goldman reimburse Tourre
would send the wrong message to others mulling illegal conduct,
though the defendant could seek reimbursement from others.
"To permit Tourre to obtain reimbursement from Goldman,
which the jury in this case found to be a co-violator of the
securities laws, would undermine the purposes of the civil
penalty statutes - to punish the individual violator and to
deter future violations," she wrote.
Goldman did pay Tourre's legal fees, and has said it had no
agreement with Tourre to reimburse him for penalties.
A spokesman for the bank declined to comment on Wednesday.
Forrest also denied an SEC request for an injunction barring
Tourre from future securities law violations, saying there was
no evidence he planned to return to the industry after finishing
his studies in June 2016. But she said the SEC could reapply if
he returns in the next three years.
The judge's decision drew mixed reactions.
"This really sends a loud and clear message that this court
is not going to tolerate this conduct," said David Marder, a
partner at Robins, Kaplan, Miller & Ciresi and a former SEC
But Dennis Kelleher, chief executive of the non-profit
organization Better Markets, said a big fine cannot hide the
government's "indefensible" failure to have brought criminal
charges against senior Wall Street executives over the financial
"Wall Street recklessness, fraud and criminality were at the
core of the crash and crisis," he said. "History will judge
prosecutors and regulators harshly for abdicating their duty to
enforce the law without fear or favor on Wall Street as they do
on Main Street."
The case is SEC v. Tourre, U.S. District Court, Southern
District of New York, No. 10-03229.