WASHINGTON/NEW YORK (Reuters) - Goldman Sachs Group Inc’s Fabrice Tourre, the sole employee charged in a government fraud lawsuit against the firm, said he never hid material information, as the bank defended itself against charges that it profiteered from the housing crisis.
In prepared testimony before a Senate committee on Tuesday, Tourre vowed to defend himself against the Securities and Exchange Commission lawsuit, and said he “categorically” denied the allegation that he failed to disclose material information about a product he was selling.
Senior Goldman officials combated charges from lawmakers that the investment bank profited from its clients misery as the housing market crumbled.
Goldman Sachs eked out only a small profit from residential mortgages in 2007, and lost money on them in 2008, Chief Financial Officer David Viniar said in prepared testimony to the Senate Permanent Subcommittee on Investigations.
Viniar emphasized that Goldman’s mortgage profits in 2007 came not so much from prescience as risk management. The bank’s residential mortgage positions were losing money daily in December 2006.
There was a vigorous internal debate about the future of the housing market that came to no firm conclusions, but Goldman decided to reduce its exposure given the risk in the market, Viniar said.
As Goldman reduced its exposure, it sold positions to investors that saw them as attractive.
“As with our own views, their views sometimes proved to be correct and sometimes incorrect,” Viniar said.
The SEC sued Goldman and Tourre on April 16. It contended that Goldman failed to tell investors that it had allowed the hedge fund firm Paulson & Co to choose securities for a transaction known as ABACUS transaction that the fund believed would actually lose value.
Paulson & Co is believed to have made $1 billion from the transaction, roughly the same amount other investors lost. The firm and its principal, John Paulson, have not been charged.
In his testimony, Tourre said he never told ACA, the portfolio selection agent, that Paulson & Co would take an equity or long position in the Abacus transaction, and was “surprised” that ACA could have thought otherwise.
He also said the transaction “was not designed to fail,” that Goldman had no economic motive for it to fail, and that he did not mislead ACA or the German bank IKB, two major investors in the transaction.
“While Paulson, Goldman Sachs and IKB all had input” into the portfolio, “ACA ultimately analyzed and approved every security in the deal,” he said.
“When Goldman Sachs represented to investors that ACA selected the referenced securities, that statement was absolutely correct,” Tourre added.
Other Goldman officials are also expected to testify before the Senate subcommittee today, including Chief Executive Lloyd Blankfein.
Reporting by Jonathan Stempel and Dan Wilchins, editing by Dave Zimmerman and Tim Dobbyn
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