'Fabulous' Fab Tourre says email in SEC case wasn't 'accurate'
Fabrice Tourre, the former Goldman Sachs trader accused of helping billionaire John Paulson's hedge fund construct a $2 billion deal that it could bet against, said Wednesday in testimony that an email he sent to a key participant in the deal was inaccurate.
Tourre, 34, made the statement after taking the stand in the eighth day of what has become the highest-profile trial to come out of the Securities and Exchange Commission's investigations of the 2008 financial crisis.
The trial is a chance for the agency to show it can win big cases against people on Wall Street for wrongdoing that led to the crisis.
SEC lawyers say Tourre was driven by "Wall Street greed" to mislead investors in the infamous deal, called Abacus 2007-AC1. He denies any wrongdoing.
Early questioning of Tourre on Wednesday afternoon focused on a Jan. 10, 2007, email he sent to an executive at ACA Capital describing what became Abacus. The SEC claims that ACA was misled into believing Paulson was an equity investor.
The email said the riskiest slice of the deal was "precommitted," which an executive at ACA testified she believed meant Paulson would invest in it. Tourre acknowledged Wednesday that it was not precommitted.
Asked by an SEC lawyer if the statement was "false," Tourre said that "it was not accurate." He added, "I wasn't trying to confuse anybody, it just wasn't accurate at the time."
His testimony comes three years after the SEC accused him and Goldman Sachs of fraud over Abacus, a synthetic collateralized debt obligation.
Experts say that in a civil case, such as Tourre's, a jury could draw an adverse inference if he asserted his constitutional right not to testify to avoid incriminating himself.
"It creates the presumption you did something wrong," said David Marder, a former SEC lawyer at Robins Kaplan Miller & Ciresi.
Goldman and Tourre did not tell potential investors that Paulson & Co. helped select the mortgage-backed securities linked to Abacus and then went on to bet against it. Amid the outcry that followed, Tourre was called before a congressional committee.
Goldman agreed in July 2010 to pay $550 million to settle the claims against it without admitting or denying wrongdoing. Before that settlement was announced, Tourre rejected received a settlement offer, said a person familiar with the matter.
Tourre, who left Goldman last year, faces a fine and a lifetime ban from the securities industry if jurors find him liable. He is now an economics doctoral student at the University of Chicago.
ACA, which was renamed Manifold Capital in 2008, ultimately not only helped set up Abacus as the portfolio selection agent but also bought $42 million of securities in the deal and agreed to insure a $909 million slice of it via then-subsidiary ACA Financial Guaranty.
The SEC cites in its complaint an email Tourre sent to his girlfriend on Jan. 23, 2007, to his girlfriend at the time, in which he said the "whole building is about to collapse anytime now"—a reference to the financial markets.
The email continued, "Only potential survivor, the fabulous Fab ... standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!! "
When the securities in Abacus turned toxic amid the downturn in the subprime mortgage market, investors lost $1 billion, the SEC says. Meanwhile, Paulson, who made $15 billion betting against the housing market, made about $1 billion shorting the CDO, according to the SEC.