SEC takes Goldman's 'Fabulous Fab' to trial in civil fraud case

Sun Jul 14, 2013 11:08am EDT
 
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By Nate Raymond

NEW YORK (Reuters) - The U.S. Securities and Exchange Commission heads to trial Monday against a former Goldman Sachs bond trader in a case it says highlights what went wrong on Wall Street in the financial crisis.

Jury selection begins in federal court in New York in the civil fraud case against Fabrice Tourre, 34, who the SEC says misled investors in an ill-fated mortgage securities investment called Abacus 2007-AC1.

It is the highest-profile trial to date stemming from the SEC's investigation of the events leading up to the 2008 crisis and, legal experts say, presents a chance for the SEC to hold an individual responsible at trial.

The SEC's case, as summed up by U.S. District Judge Katherine Forrest last month, is that Tourre "handed Little Red Riding Hood an invitation to grandmother's house while concealing the fact that it was written by the Big Bad Wolf."

According to the SEC, the wolf in question is John Paulson, a hedge fund billionaire whose bet against the subprime mortgage market was chronicled in "The Greatest Trade Ever" by Gregory Zuckerman.

In 2006, Paulson's hedge fund, Paulson & Co Inc, turned to Goldman Sachs Group Inc for help betting against subprime mortgages, the SEC said.

They began discussing Abacus, which would give Paulson a role in picking the underlying portfolio of mortgage securities, the SEC said. Paulson could then short, or bet against, it through an insurance product called a credit default swap.

At the time, Tourre, a French national, was 28 years old and working at Goldman Sachs in New York. He became the bank's principal employee working on what became Abacus, known in the financial industry as a synthetic collateralized debt obligation.   Continued...

 
Former Goldman Sachs Group Inc. trader Fabrice Tourre (C) leaves the United States Court in New York City, April 26, 2013. REUTERS/Mike Segar