Not So ‘Fabulous’ Fab: Ex-Goldman Sachs Trader Fabrice Tourre Found Liable for Fraud

Tourre became a symbol of Wall Street hubris after boasting that he sold toxic mortgage assets to "widows and orphans"

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Keith Bedford / Reuters

Former Goldman Sachs bond trader Fabrice Tourre leaves the Manhattan Federal Court in New York August 1, 2013.

Fabrice Tourre, a former Goldman Sachs bond trader known for his colorful nickname “Fabulous Fab,” was found liable for fraud Thursday for his role in a failed mortgage deal that cost investors $1 billion in a debacle that foreshadowed the financial crisis. The verdict represents the most high-profile court victory related to the subprime mortgage meltdown for the Securities and Exchange Commission, which has faced criticism for failing to hold Wall Street bankers accountable for their role in creating the complex financial products that helped plunge the U.S. into the worst recession in decades.

Tourre was found liable on six of seven SEC fraud charges after a nine-member jury deliberated for two days at the conclusion of a civil trial in Manhattan federal court. In the case, U.S. regulators portrayed the French-born Tourre as a poster-boy for Wall Street greed and bad behavior. Tourre’s attorneys, meanwhile, insisted that their client was little more than an innocent scapegoat.

“We are gratified by the jury’s verdict,” Andrew Ceresney, co-director of the SEC’s enforcement division, said in a statement emailed to TIME. “We will continue to vigorously seek to hold accountable, and bring to trial when necessary, those who commit fraud on Wall Street.”

Tourre faced civil charges, which means he won’t be going to prison, but the former Goldman Sachs trader faces a possible lifetime ban from the financial services industry, as well as financial penalties to be determined by Judge Katherine B. Forrest, who presided over the case in the U.S. District Court for the Southern District of New York.

Federal regulators had accused Tourre, 34, with misleading investors about a complex mortgage-based financial product known as Abacus 2007-AC1, which was secretly designed to fail. Tourre allegedly failed to inform clients that hedge fund titan John Paulson, a key Goldman Sachs client, helped select the securities underlying the product, known as a collateralized debt obligation, which he intended to bet against.

(MOREA Couple of Questions for Goldman Sachs)

The Tourre case became a symbol for Wall Street hubris and double-dealing, and helped provoke the public outrage that would eventually explode in nationwide Occupy Wall Street protests. Some critics have questioned why the feds chose to charge Tourre, once an obscure mid-level Goldman Sachs employee, instead of any of the top executives at the Wall Street banks that created the toxic securities at the heart of the financial crisis.

To date, no top Wall Street executive has been charged over the complex financial jujitsu that helped lead to the Great Recession. Goldman Sachs settled the case with federal regulators in 2010 by paying a then-record $550 million fine without admitting or denying wrongdoing. After Thursday’s verdict, Goldman Sachs said in a statement: “As a firm, we remain focused on being more transparent, more accountable and more responsive to the needs of our clients.”

Tourre became the object of ridicule over an email he sent to his girlfriend in which he boasted that he sold toxic mortgage bonds to “widows and orphans that I ran into at the airport.” He also referred to the financial products he created as “pure intellectual masturbation.” In another email, Tourre wrote, “The whole building is about to collapse anytime now.” He added: “Only potential survivor, the fabulous Fab…standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all the implications of those monstrosities!!!”

At the trial, SEC lawyers produced an email allegedly showing that Tourre misled another Goldman Sachs client, ACA Capital Holdings, into thinking that Paulson would take a long position on the product, meaning he would bet that its value would rise. In fact, Paulson planned to bet against the securities underlying the product. Goldman, which made millions of dollars in fees on the deal, paid Tourre a $1.7 million salary and bonus in 2007, the year of the Abacus deal. Paulson would go on to make billions of dollars betting that the U.S. housing market would collapse.

“As shown by this verdict, we proved that Mr. Tourre, as a Goldman Sachs Vice President, put together a complicated financial product that was secretly designed to maximize the likelihood that it would fail, and marketed and sold it to investors without appropriate disclosure,” Ceresney said. Tourre is now enrolled in a doctoral economics program at the University of Chicago.

Throughout the case, prosecutors delved deeply into the esoteric world of mortgage-based financial engineering, using complex jargon that occasionally lulled the jurors to sleep. In a sign of their apparent confidence in their case, Tourre’s lawyers, who were paid by Goldman Sachs, didn’t call a single witness to help bolster the claim that their client had done nothing wrong, a decision that will no-doubt be second guessed.

When lawyers for the federal government asked Tourre in court if the information in his email touting the Abacus product was “false,” he responded, “It was not accurate,” according to the Associated Press. “I wasn’t trying to confuse anybody; it just wasn’t accurate at the time,” Tourre said.

4 comments
Hank_Rearden
Hank_Rearden

What a relief!!  Just when we thought that there had been a culture of corruption on Wall Street with the leading investment banks peddling worthless financial derivatives to clueless clients and partners making 10's of millions a year, we find that it all was due to....the lowest ranking guy they could find at Goldman Sachs.  Goldman must feel really abused by this verdict.  Here they were out helping the homeless find warm grates to sleep on and back at the office this poltroon - and a FRENCH poltroon at that - was stabbing them in the back.  


They thought those profits were manna from Heaven for all the good works they were doing.  Who knew?  Count on the SEC to ferret out the evil-doers.  You COULD ask yourself this question...How long do you think Fabulous Fab would have lasted at Goldman if he had REFUSED to peddle their latest concoction?  But why be the skunk at the garden party?


I certainly feel better!!

paulgeorges
paulgeorges

The end justifies the means  for him and his frinds .How is that possible to revere such a such a selfish guy who think to play God with money of others ? As long as such official delinquant will be no reponsabile with it's own asset nothing will change.  ? Jail must be the minimum and second step a very huge fine,not bellow $ 10000000 at least,will be a fatal blow in his heart if paid by him and not his bank.We condemn and are all, or almost, okay against a criminal who will be punished by the death penalty. Why don't we arrive at the same conclusion against someone who drives to despair millions of people,famillies who lost their houses,job, and to sometimes commit suicide. While he don't give a damn about all the mess he did, except for his own little person !



Zinnson4
Zinnson4

the judgment is Pyrrhic at best. The Frenchman is probably judgment proof.

paulgeorges
paulgeorges

@Zinnson4 Today anyone with a job can no longer live normally and irresponsible are paid extraordinary sums letting them do whatever  they want at the expense of others.