Tourre and SEC more than $1 million apart on penalty for fraud

Wed Jan 22, 2014 11:21am EST
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By Jonathan Stempel

NEW YORK (Reuters) - A $1 million gulf stands between the top U.S. securities regulator and former Goldman Sachs Group Inc (GS.N: Quote) vice president Fabrice Tourre over the appropriate size of his penalty for securities fraud.

In papers filed Tuesday night with the U.S. District Court in Manhattan, Tourre said the U.S. Securities and Exchange Commission was not justified in demanding that he pay $1.15 million, including a $910,000 fine, as punishment.

He said the penalty should not exceed $65,000.

Tourre was accused by the SEC of misleading investors in a 2007 mortgage transaction that soon imploded, the synthetic collateralized debt obligation Abacus 2007-AC1, by concealing how hedge fund billionaire John Paulson helped construct the transaction and bet that it would fail.

A federal jury found Tourre liable in August on six securities fraud counts.

U.S. District Judge Katherine Forrest, who presided over Tourre's trial, must now decide what punishment to impose. Tourre may then appeal the verdict. Goldman Sachs is paying his legal fees.

Tourre's argument is that jurors did not find that his conduct caused or threatened losses to support the penalty sought by the SEC. The regulator said investors lost $1 billion on Abacus.

"There was no evidence, and no finding, that Mr. Tourre's conduct had any impact whatsoever on the economic performance of AC1 and on the investors who bought and sold exposure" to its underlying securities, his lawyers wrote.   Continued...

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