(Corrects day email cited in 22nd paragraph was sent)
By Nate Raymond and Lauren Tara LaCapra
NEW YORK, July 24 Fabrice Tourre, the former
Goldman Sachs trader accused of secretly helping the hedge fund
of billionaire John Paulson construct a $2 billion deal it could
bet against, said Wednesday an email he sent to a key
participant in the investment was inaccurate.
Tourre, 34, made the statement after taking the stand in the
eighth day of what has become the highest-profile trial to come
out of the U.S. Securities and Exchange Commission's
investigations of the 2008 financial crisis.
The trial is a chance for the SEC to show it can win big
cases against individuals on Wall Street for wrongdoing that
caused the financial crisis.
SEC lawyers say Tourre was driven by "Wall Street greed" to
mislead investors in the infamous investment called Abacus
2007-AC1. Tourre denies any wrongdoing.
Early questioning of Tourre on Wednesday afternoon focused
on a Jan. 10, 2007, email Tourre sent describing what became
Abacus to an executive at ACA Capital Holdings Inc, which the
SEC claims was misled into believing hedge fund Paulson & Co Inc
was an equity investor.
The email said the riskiest slice of Abacus was
"pre-committed," which an executive at ACA testified she
believed meant Paulson would invest in it. Tourre, who left
Goldman in 2012, acknowledged Wednesday that it was not
Asked repeatedly by an SEC lawyer if the statement was
"false," Tourre said, "It was not accurate."
"I wasn't trying to confuse anybody, it just wasn't accurate
at the time," he said.
Tourre's testimony comes three years after the SEC accused
him and Goldman Sachs Group Inc of fraud over Abacus, a
synthetic collateralized debt obligation.
Defendants can assert the right under the U.S. Constitution
not to testify, to avoid incriminating themselves, and
frequently do in criminal cases. But experts say that in a civil
case, such as Tourre's, a jury could draw an adverse inference
if he asserted that right.
"It creates the presumption you did something wrong," said
David Marder, a former SEC lawyer at Robins, Kaplan, Miller &
Goldman and Tourre did not tell potential investors that
Paulson & Co helped select the mortgage-backed securities linked
to Abacus and then went on to bet against it.
When the securities in Abacus turned toxic amid the downturn
in the U.S. subprime mortgage market, investors lost $1 billion,
the SEC says. Paulson, who made $15 billion betting against the
housing market, meanwhile made about $1 billion shorting the
CDO, the SEC says.
Goldman Sachs agreed in July 2010 to pay $550 million to
settle the claims against it without admitting or denying
wrongdoing. Before that accord was announced, Tourre received a
settlement offer but rejected it, a person familiar with the
Tourre, who in an email cited by the SEC is referred to as
the "Fabulous Fab," is now an economics doctoral student at the
University of Chicago. He faces a fine and a lifetime ban from
the securities industry if jurors find him liable.
At times, the judge or court reporter had difficulty
understanding the pronunciation of some words, including "bond,"
by Tourre, a Frenchman.
"Sorry, my French accent, I guess," he said.
'NOBODY EVER CORRECTED ME'
The Jan. 10, 2007, email was sent by Tourre to Laura
Schwartz, a former managing director at ACA, at a time when ACA
was being considered as the portfolio selection agent on the
While Tourre acknowledged that the language about the risky
slice of Abacus being "pre-committed" wasn't accurate, he
insisted that he did not intentionally mislead anyone. He also
said a description of Paulson as "transaction sponsor" did not
mean the hedge fund was an equity investor.
Tourre, dressed in a black suit and purple tie, rejected the
interpretation of his former supervisor at Goldman, Jonathan
Egol, who last week said he "wouldn't customarily have used the
term" to mean a short investor. Tourre said he used the term to
also mean a short in emails about other deals.
"Nobody ever corrected me," he said.
An email by Schwartz four days later to a Goldman saleswoman
forwarded to Tourre referred to Paulson having an "equity
Asked by SEC lawyer Matthew Martens if there was an
interpretation for that phrase other than Paulson being an
equity investor, Tourre said he didn't have any. He said he had
"no memory" of alerting the Goldman saleswoman or Schwartz to
say Paulson wasn't an equity investor.
ACA, which was renamed Manifold Capital Corp in
2008, ultimately not only helped set up Abacus as the portfolio
selection agent but also bought $42 million of securities in the
deal and agreed to insure a $909 million slice of it via its
then-subsidiary ACA Financial Guaranty Corp.
Tourre took the stand after a second day of questioning of
Schwartz, the SEC's star witness. She had testified Tuesday that
she "believed Paulson would be the equity investor in the
Sean Coffey, a lawyer for Tourre, asked Schwartz on
Wednesday if she "just assumed it was an investor."
Coffey asked Schwartz about other mortgage deals ACA did
with hedge funds and asked if she knew if they planned to short
them on top of their investments in the transactions. Schwartz
said she didn't recall or know.
Coffey then questioned Schwartz about why she didn't ask
about this if, as she had earlier testified, ACA would have
avoided working with Paulson, had its short position been known,
to protect ACA's reputation.
"If it mattered, wouldn't you ask?" Coffey said.
The case is SEC v. Tourre, U.S. District Court, Southern
District of New York, No. 10-03229.
(Reporting by Nate Raymond and Lauren Tara LaCapra; Editing by
Eddie Evans and Douglas Royalty)