| Story Views | |
| Now: | |
| Last Hour: | |
| Last 24 Hours: | |
| Total: | |
Former Goldman Exec Tourre Fights to Clear his Name
By Justin Baer and Ben Kesling
Wall Street Journal
Fabrice Tourre is trying to get on with his life.
Since he first emerged three years ago as the Goldman Sachs Group Inc. GS -0.29% employee at the center of one of the most bruising regulatory battles in the firm’s history, Mr. Tourre has settled into the cloistered world of academia. He is pursuing a doctorate in economics at the University of Chicago and working as a teaching assistant.
Mr. Tourre was even captain of his indoor intramural soccer team, the Bootstrappers. The squad went undefeated until an Achilles tendon injury in January sidelined Mr. Tourre for the season. That didn’t deter him from attending Sunday morning games, via crutches, to cheer on his teammates.
He is also the last man standing in one of the Securities and Exchange Commission’s biggest postfinancial-crisis enforcement cases.
The SEC sued Goldman and Mr. Tourre, then a vice president, in April 2010, alleging they misled investors on a collateralized-debt obligation called Abacus 2007-AC1 that produced big losses for investors and big gains for hedge-fund firm Paulson & Co. A collateralized-debt obligation, or CDO, pools loans, such as subprime mortgages, with slices of the security sold to investors.
Mr. Tourre’s emails formed a central part of the regulator’s case and created a sensation on Wall Street. The messages disclosed both a sense of humor—in one email, he refers to himself as “the fabulous Fab”—and a keen awareness of the looming crisis.
Goldman in July 2010 agreed to pay $550 million to settle the SEC’s complaint, without admitting or denying the allegations. The firm acknowledged its marketing materials on Abacus “contained incomplete information” by not disclosing Paulson’s role in the deal. Mr. Tourre refused to settle and continues his legal fight to clear his name. A trial is slated to begin in July. A spokesman for Goldman declined to comment. Mr. Tourre declined to discuss his case, saying the situation is “too complicated.”
On Friday, the civil case against Mr. Tourre will enter a new phase. U.S. District Judge Katherine Forrest is due to hear arguments on several motions that could alter the course of the three-year proceeding.
One motion, filed by Mr. Tourre, centers on the question of whether the SEC can include as evidence a recorded phone call from January 2007 between a Goldman saleswoman and an executive at ACA Financial Guaranty Corp., which had been appointed to pick the securities bundled into Abacus.
During the call, the Goldman saleswoman told the ACA executive that Goldman was “placing a hundred percent of the equity” on Abacus with Paulson & Co., according to court papers. Such a position implies that Paulson was betting the CDO would increase in value. In fact, the SEC argues, Mr. Tourre knew Paulson intended to bet the CDO would fall in value. Representatives for ACA and Paulson declined to comment.
In court papers, Mr. Tourre’s lawyers have argued the regulator is cherry-picking one phone call within a large trove of recordings the SEC had known about since 2008. They argued that Mr. Tourre learned of its existence only in December 2012, after the discovery period on the case had ended, and have sought to exclude it on grounds that it is too late to review thousands of calls and then take depositions from those involved.
The SEC acknowledged in court papers that it received a call log from ACA in 2008, but noted that the bond insurer had delivered it to the SEC’s New York investigators, which had launched two separate inquiries involving ACA.
The Wall Street Journal reported last month that the SEC has been probing UBS AG UBS +0.30% and ACA in connection with another CDO.
The SEC’s investigators on the Abacus case were based in Washington, the regulator said in court papers, and didn’t learn of the ACA log until the fall of 2012. The SEC didn’t receive the recording of the call between the Goldman saleswoman and ACA until December, after the recording had surfaced in a lawsuit filed by ACA against Goldman and Paulson. ACA accused Goldman and Paulson of conspiring to get the company to insure Abacus. Goldman has said that ACA knew of Paulson’s bets against mortgage securities when it insured the deal. Last month, Paulson asked a state court judge to throw out ACA’s suit.
“Defendants all the time lay low and see what the SEC can come up with,” Judge Forrest said in a March 21 conference call with SEC officials and Mr. Tourre’s lawyers. “The question is whether or not you have in fact made a mistake, and I think that’s an open question,” she said, referring to the regulator.
Barry Slotnick, a criminal-defense attorney and partner at Buchanan Ingersoll & Rooney, predicted the court ultimately would allow both sides to review all of the evidence, including the January 2007 phone call, even if it means delaying the trial.
“They have to reopen discovery,” Mr. Slotnick said. “And if not, there will be an appeal.”
Meanwhile, back in Chicago, Mr. Tourre is embracing an upscale version of the graduate student’s life. Goldman placed Mr. Tourre on unpaid leave in late 2011, and he returned to school. He left the firm, which continues to pay his legal bills, this past December.
Mr. Tourre resides in a high-rise building overlooking Lake Michigan and Chicago’s stately Field Museum. In the lobby, a uniformed guard screens guests as they come in the door.
At the university, a photo of Mr. Tourre smiling confidently hangs in a hallway outside economics department offices, among pictures of the 40 other graduate students in his class. On a Wednesday in February, Mr. Tourre dutifully fulfilled his teaching-assistant role, staying after a professor’s lecture to work one-on-one with a student, hunched over notebooks and gesticulating energetically.
“If you didn’t know he was being sued for this stuff, you wouldn’t even notice,” said one classmate of Mr. Tourre’s, who declined to be named. “He’s just one of the guys here.”
Mr. Tourre is “helpful” and enjoys spirited academic discussions, the classmate said. “You come together in cubicles and discuss the problem sets. Fabrice is not the quiet guy, he enjoys the discussions,” he said. “People like Fabrice, who come from investment banking, are very useful in the [economics] program. As academics we tend to be on the outside, and investment banks tend to be closed. People are joking that economists develop these models, but the real world is much messier.”
Mr. Tourre’s classmate said he sometimes makes jokes about Mr. Tourre’s legal woes. But while Mr. Tourre might chuckle, “he doesn’t talk about it because this is a serious case,” the classmate said.
Mr. Tourre was voted most valuable player in some Bootstrapper games until his injury. In a brief interview, as he limped along on crutches in a wood-paneled academic building, Mr. Tourre jokingly lamented the fact that, as a 30-something, his body wasn’t quite as resilient as it used to be.
Write to Justin Baer at [email protected]
The post Former Goldman Exec Tourre Fights to Clear his Name appeared first on Midas Letter.
2013-04-26 12:16:40
Source: http://www.midasletter.com/2013/04/former-goldman-exec-tourre-fights-to-clear-his-name-1304264/
Source:
