* Ex-Goldman VP liable on six of seven civil counts
* Paulson hedge fund benefited by shorting Abacus CDO
By Nate Raymond
NEW YORK, Aug 1 A jury found former Goldman
Sachs Group Inc vice president Fabrice Tourre liable for
fraud for his role in a failed mortgage deal that cost investors
$1 billion, in a big victory for the U.S. Securities and
Tourre was found liable on six of seven counts by a
Manhattan federal jury in the SEC's highest-profile trial to
spill out of its investigations into causes of the 2008
"We are gratified by the jury's verdict," said Andrew
Ceresney, co-director of the regulator's enforcement division.
"We will continue to vigorously seek to hold accountable, and
bring to trial when necessary, those who commit fraud on Wall
After the jury was dismissed, Tourre raised his eyebrows to
one of his lawyers. He and his lawyers left court without
commenting on whether he plans to appeal, walking through
drizzling rain followed by reporters and camera crews.
U.S. District Judge Katherine Forrest will now determine
whether to order Tourre to pay financial penalties or to
disgorge any illegal profits as a result of his misconduct.
Tourre testified he earned $1.7 million in 2007. He could also
be banned from the securities industry for life.
Forrest asked both sides to submit proposals by Aug. 23 for
what she termed "next steps."
The SEC accused Tourre, 34, in a civil lawsuit of
misleading investors in a product known as Abacus 2007-AC1 by
failing to disclose that hedge fund billionaire John Paulson
helped choose, and intended to bet against, mortgage securities
underlying the 2007 deal.
It also alleged that Tourre misled ACA Capital Holdings Inc,
a company also involved in selecting assets for Abacus, into
believing Paulson & Co Inc would be an equity investor in the
synthetic collateralized debt obligation.
In a 2007 email that was shown to jurors, Tourre told his
girlfriend at the time that the "whole building is about to
collapse anytime now," referring to financial markets.
"Only potential survivor, the fabulous Fab ... standing in
the middle of all these complex, highly leveraged, exotic trades
he created without necessarily understanding all of the
implications of those monstrosities!!!"
Paulson went on to make billions of dollars in 2007 betting
against the U.S. housing market.
The SEC said Paulson & Co made about $1 billion from his
short position on Abacus, while investors including ACA and IKB
Deutsche Industriebank AG lost about the same amount.
Tourre is pursuing a doctorate in economics at the
University of Chicago after formally parting ways with Goldman
at the end of 2012. Goldman is continuing to pay for his legal
Goldman agreed in July 2010 to pay $550 million to settle
with the SEC over Abacus, without admitting or denying
wrongdoing. But the bank did say that some of its marketing
materials were misleading.
"As a firm, we remain focused on being more transparent,
more accountable and more responsive to the needs of our
clients," said Michael DuVally, a Goldman spokesman.
Tourre himself received an SEC offer to settle around the
same time, a person familiar with the matter said.
"Maybe he really believed he was innocent; fraud is a funny
thing," said Hillary Sale, a professor at the Washington
University School of Law. "But poor Fabrice. You have to kind of
feel bad for him; he was just a kid."
Jurors remained largely tight-lipped as they dodged
reporters and walked quickly out of the court.
"It was a long, slow process," said Reverend Beth Glover,
47, an Episcopal priest, outside of the courthouse.
None of the jurors would discuss the intricacies of their
"It's been a long day," said Reece Pate, 37, a graphic
The win could give the SEC ammunition to address critics who
have long argued the agency has been insufficiently aggressive
in holding individuals on Wall Street accountable for their
roles in the events leading to the financial crisis.
"It is a great result for the SEC," said Mary Schapiro, who
chaired the regulator when it brought the case against Goldman
and Tourre, and now heads the governance and markets practice at
consulting firm Promontory Financial Group.
"This win reinforces that the agency can and will litigate
appropriate cases," she continued. "That may make it easier to
secure admissions (of wrongdoing)."
In June, Schapiro's successor as SEC chair, Mary Jo White,
said the regulator plans to seek admissions of wrongdoing in
select enforcement cases. It also still plans to let many
targets settle cases without admitting or denying the charges.
"The SEC win in this matter illustrates they have the trial
ability to effectively present these complicated cases to
jurors," said Stephen Crimmins, a former SEC lawyer at K&L
The verdict may not assuage all the SEC's critics. Dennis
Kelleher, chief executive of financial regulation advocacy group
Better Markets, said in a statement all the SEC had done was
"scapegoat a single mid-level Goldman Sachs' trader who bragged
in emails to his girlfriend."
"Wall Street crashed the global financial system and almost
caused a second Great Depression," Kelleher said. "Yet, the SEC
failed to go after Wall Street's bonus-bloated executives who
ran the banks that sold trillions of dollars of worthless
The SEC says it has brought charges against 157 entities and
individuals in financial crisis-linked enforcement actions. It
has obtained $2.68 billion in penalties and other judgments from
defendants, largely through settlements.
The likelihood that the SEC would win was not clear cut
before the verdict, and the agency's record in financial
crisis-related cases before the Tourre trial had been less than
In a case that also involving a complex mortgage investment,
a federal jury in Manhattan in July 2012 cleared former
Citigroup Inc manager Brian Stoker on civil charges he misled
investors in a $1 billion CDO.
In November 2012, the SEC dropped civil charges against
Edward Steffelin, a former managing director at GSC Capital
Corp, in light of what a spokesman said was "information that
came to light as the litigation progressed."
The lawsuit had accused Steffelin of failing to ensure
marketing materials for a $1.1 billion CDO structured by
JPMorgan Chase & Co disclosed the involvement of hedge fund
Magnetar Capital LLC in selecting assets.
In the Stoker and Steffelin cases, the two banks that were
also sued agreed to pay nine-figure settlements without
admitting or denying allegations.
In Tourre's case, the judge and lawyers alike had over the
course of the trial expressed concerns that the five women and
four men on the jury were growing bored and were struggling to
stay awake during the complex trial.
Tourre's lawyers had also, in a sign of confidence, said on
Monday they would call no witnesses after the SEC rested its
The case is SEC v. Tourre, U.S. District Court, Southern
District of New York, No. 10-03229.