Goldman Sachs

Ex-Goldman banker Tourre denies creating subprime 'monstrosities'

Failed US$1b subprime mortgage investment was not designed to fail, court told

PUBLISHED : Friday, 26 July, 2013, 9:04am
UPDATED : Saturday, 27 July, 2013, 3:24am

Fabrice Tourre has previewed his defence against civil fraud claims over a failed US$1 billion investment, telling jurors about his former life as a 28-year-old Goldman Sachs Group vice-president, working until midnight, six days a week on a vast trading floor, supervising no one.

"I would say there were thousands of vice-presidents at Goldman," Tourre, now 34, testified on Thursday in Manhattan federal court.

The US Securities and Exchange Commission claims Tourre intentionally misled participants in a 2007 deal known as Abacus about the role played by Paulson & Co, the hedge fund run by John Paulson. The SEC claims Tourre hid that Paulson helped choose the portfolio of subprime mortgage-backed securities underlying Abacus, then made a US-billion-dollar bet it would fail.

Tourre's lead lawyer, Pamela Chepiga, began questioning her client on Thursday afternoon, seeking to minimise Tourre's responsibility for the transaction by showing it was reviewed by dozens of people at Goldman Sachs.

Abacus, which closed in April 2007, turned worthless when the housing market crashed, losing US$1 billion for investors who bet the subprime mortgage bond portfolio would perform well.

Answering Chepiga's questions, Tourre denied misleading anyone about Paulson's role in Abacus and said he thought ACA Management, the company that was hired to select mortgage bonds for Abacus, knew the hedge fund was shorting the deal.

"Was that reference portfolio designed to fail?" Chepiga asked Tourre.

"Of course not," he replied.

Matthew Martens, who is leading the SEC's trial team against Tourre, had earlier introduced e-mails Tourre sent to a former girlfriend in 2007 as proof that he intentionally committed fraud in putting together the Abacus transaction.

Under questioning by Martens, Tourre was compelled to read to jurors a January 23, 2007, e-mail in which he quoted a friend's nickname for him: Fabulous Fab. Tourre referred to the "complex, highly levered, exotic trades" he created as "monstruosities" (sic) in the message.

"This is a silly, romantic e-mail I sent late at night at a moment of market stress," Tourre said in court.

Asked by Martens what "monstrosities" he was talking about, Tourre said: "I didn't create any monstrosities."

SEC lawyer Martens said e-mails showed Tourre knew what he was doing in certain deals was wrong.