Tourre trial lawyers told to tone down jargon
Lawyers on both sides of the US government's civil lawsuit against a former Goldman Sachs staff member who has become a prominent face of the financial crisis were asked to keep legal mumbo jumbo to a minimum.
But despite the presiding judge's plea to avoid terms like swaps and "synthetic CDOs" - the judge said "mere mortals don't know what a trading desk is" - both sides dove into descriptions of residential mortgage-backed securities and credit default swaps.
It was a clunky opening to the civil trial in New York of Fabrice Tourre, whose work putting together a now-notorious mortgage investment is the focus of the Securities and Exchange Commission's case.
Mr Tourre, 34, a Frenchman who was on Goldman's mortgage desk, was the point person in building a 2007 debt investment that ultimately failed. As the most prominent target of a government lawsuit tied to the financial crisis, he has become a lightning rod for criticism. Goldman was charged alongside Mr Tourre but chose to settle, paying what was in 2010 a record $US550 million penalty, without admitting guilt.
During opening statements, lawyers for the SEC and Mr Tourre painted differing pictures of what was at stake in the trial. Mr Tourre has denied wrongdoing. He is the only individual facing charges stemming from the investment product.
Matthew Martens, the SEC's lead lawyer and the head of the agency's trial unit, argued the case was about taking on excessive greed and trickery on Wall Street. Contending that Mr Tourre had misled investors about the true origins of the mortgage investment doomed to fail, he argued that the former Goldman employee shirked his legal duties to enrich both his firm and a big hedge fund client.
Ultimately, Goldman made $US15 million in fees on the investment. The firm's client, the hedge fund Paulson & Co, made an estimated $US1 billion. "The defendant knew he was committing a fraud," Mr Martens said.
One of Mr Tourre's lawyers, led by Pamela Chepiga of Allen & Overy, defended him as merely participating in a game played by intelligent investors. The investment Mr Tourre assembled was a zero-sum game in which one side had to lose for the other to make money.
And one of the firms that the government has depicted as a victim, the bond insurer ACA Management, was well aware of whom it was wagering against.
"The most sophisticated bettors in the world were the only ones who got a seat at this table," Ms Chepiga said.
But both sides face the challenge of explaining the complexities of intricate debt instruments to a jury of mostly laypeople.
The trial's first witness, a finance professor at the University of California, Berkeley, was enlisted to help define the language of Mr Tourre's former world, thick with arcana like "collateralised debt obligations" and "special purpose vehicles". Several jurors appeared to take copious notes as the professor, Dwight Jaffee, spoke on the general structure of the kind of investment at the heart of this case.
Staying silent throughout the day's proceedings was Mr Tourre himself. During proceedings, he mostly looked at a laptop or chatted with his defence team. But not even he was immune to the longueurs of explaining mortgage-backed securities, yawning on occasion during Professor Jaffee's testimony.