'Fabulous Fab' faces hefty fine and ban
"Fabulous Fab", as he calls himself, was found liable by a nine-member jury for six of the seven charges against him. He now faces potential fines and a possible ban from the financial industry.
The 34-year-old, who had denied wrongdoing, was sued by the US Securities and Exchange Commission in the highest-profile trial resulting from the financial crisis.
The SEC described Tourre as the "face of Wall Street greed" and claimed he hoodwinked investors into ploughing money into a sub-prime mortgage vehicle called Abacus while he was at Goldman.
The SEC claimed Tourre and hedge fund Paulson & Co conspired to hook buyers by suggesting that founder John Paulson was also backing the vehicle, on the assumption that house prices would rise. In fact, Mr Paulson had taken a short position, betting that prices would fall. The manoeuvre ended up making $US1 billion for the fund.
The SEC also sought to show that the scheme helped earn Tourre a bonus that boosted his salary to $US1.7 million in 2007.
Goldman settled with the SEC to the tune of $US550 million without admitting or denying wrongdoing to avoid a trial, but has covered Tourre's legal fees despite him leaving last year. Goldman said: "As a firm we remain focused on being more transparent, more accountable and more responsive to the needs of our clients."
Andrew Ceresney, the SEC's co-director of enforcement, said: "We will continue to vigorously seek to hold accountable, and bring to trial when necessary, those who commit fraud on Wall Street.
"Mr Tourre put together a complicated financial product that was secretly designed to maximise the likelihood that it would fail, and marketed and sold it to investors without appropriate disclosure,"
US District Judge Katherine Forrest instructed both sides to submit proposals by August 23 for what she termed "next steps". The judge will determine any financial penalties for Tourre.
Frequently Asked Questions about this Article…
Fabrice Tourre, nicknamed “Fabulous Fab,” is a former Goldman Sachs banker who a nine-member jury found liable on six of seven charges in an SEC case over a mortgage securities fraud tied to the Abacus deal. The SEC accused him of marketing a product without appropriate disclosure and helping design a structure that was likely to fail.
Abacus was a sub-prime mortgage vehicle that the SEC says was secretly designed to maximise the likelihood it would fail and was sold without proper disclosure. Everyday investors should care because the case highlights risks around opaque mortgage securities and the importance of clear disclosure when buying complex financial products.
The SEC alleged that hedge fund Paulson & Co and its founder John Paulson took a short position against Abacus while suggesting buyers believed Paulson was backing the vehicle. That strategy ultimately made Paulson about US$1 billion, according to the article.
The article states the mortgage securities fraud cost investors about US$1 billion, while Paulson & Co’s short position on the vehicle reportedly earned the fund roughly US$1 billion. The SEC also said the deal helped boost Tourre’s 2007 pay to about US$1.7 million.
Following the jury verdict, Tourre faces potential financial penalties and a possible ban from the financial industry. US District Judge Katherine Forrest has asked both sides to submit proposals by August 23 for the court to decide next steps and any penalties.
Goldman Sachs settled with the SEC for US$550 million without admitting or denying wrongdoing to avoid a trial. The bank also covered Tourre’s legal fees even though he left the firm last year and said it would focus on being more transparent and accountable.
Andrew Ceresney, the SEC’s co-director of enforcement, said the agency will vigorously seek to hold accountable and bring to trial those who commit fraud on Wall Street. The SEC described Tourre as the “face of Wall Street greed” and argued the product was marketed to investors without appropriate disclosure.
US District Judge Katherine Forrest instructed both sides to submit proposals by August 23 outlining recommended next steps. The judge will review those submissions and determine any financial penalties or other remedies for Tourre.
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