The Securities and Exchange Commission had hoped to use Paolo Pellegrini, a chief architect of one of the most lucrative hedge fund bets in history, to support its case against Fabrice P. Tourre, a former Goldman Sachs trader charged with defrauding investors in a complex mortgage security.
Instead, Mr. Pellegrini did his best on Wednesday to destroy the government's case.
Mr. Pellegrini spent hours sparring with Matthew T. Martens, the S.E.C.'s lead lawyer, who had called him to the witness stand, over apparent contradictions to what he had previously told the S.E.C. Mr. Pellegrini, who is tall and cuts an imposing figure, seemed willing to go the distance with Mr. Martens. The two men had trouble hiding their contempt for each other.
"You are tricking me into saying so many things," Mr. Pellegrini declared on the witness stand in the civil trial in Federal District Court in Manhattan.
He tried to explain away the contradictions, saying he had been "scared" and pressured by the S.E.C. officials who had previously questioned him about the deal.
Mr. Pellegrini's testimony could confuse the jury, which is weighing whether Mr. Tourre was part of a conspiracy to mislead investors when selling them a mortgage security that ultimately failed.
Some investors in the deal lost money, but Mr. Pelligrini's former employer and Goldman client, Paulson & Company, made more than $1 billion, jurors heard on Wednesday. Mr. Pellegrini made $20 million for his work in building the security, the jury heard.
Mr. Pellegrini's role in helping Paulson & Company bet against home loans through an investment assembled in part by Mr. Tourre made him an ideal witness for the government. The S.E.C. had hoped to use Mr. Pellegrini to show that Mr. Tourre, 34, had not told investors in the security that the hedge fund Paulson & Company was actually betting against them.
That plan was thrown into disarray during several hours of combative testimony, as Mr. Pellegrini—who had been testy on Tuesday—repeatedly accused the agency of intimidating him. In a striking moment, Mr. Pellegrini asserted that he had informed an executive at the bond insurer ACA Financial Guaranty Corporation, one of the parties the S.E.C. contends was a victim of the failed investment, that his employer at the time did in fact intend on betting against the mortgage deal.
That led to one of several battles between Mr. Pellegrini and Mr. Martens. Mr. Martens, his voice tight and arms crossed over his chest, repeatedly read back Mr. Pellegrini's previous statement in a deposition in the case that he could not recall whether he had told ACA of Paulson & Company's intentions.
Mr. Pellegrini, fixing an unblinking stare at his questioner, instead contended that he used those words "under pressure" from the S.E.C. and its "hostile questions." He subsequently explained that he intentionally took a more careful and vague approach during the deposition because he was concerned that the agency was trying to deceive him.