The U.S. Securities and Exchange Commission dropped an investigation of a key witness in its fraud case against former Goldman Sachs Group Inc. executive Fabrice Tourre, according to a lawyer for the witness.
Tourre faces a July 15 trial on the SEC’s lawsuit over his role in structuring a collateralized debt obligation known as Abacus 2007-AC1. His lawyers are seeking information from former ACA Financial Guaranty Corp. executive Laura Schwartz about an SEC notice she received earlier this year that the regulator may bring an action against her unrelated to Abacus. She is expected to testify against Tourre, according to court records.
The SEC, in a June 27 letter, told Schwartz’s lawyer that its New York field office completed its investigation and didn’t intend to recommend action against her, the lawyer, Robin Alperstein, said in a letter to the judge overseeing the Tourre case yesterday.
The SEC says Tourre misled ACA and other investors in Abacus, claiming he didn’t disclose that hedge fund Paulson & Co. Inc. helped pick the securities underlying the CDO with the intention of betting against them.
CDOs are pools of assets such as mortgage bonds packaged into new securities. Interest payments on the underlying bonds or loans are used to pay investors. The Abacus entity was a synthetic CDO, meaning its cash flow came from derivatives that referenced mortgage-backed securities.
Goldman Sachs in 2010 agreed to pay $550 million to settle SEC claims against it in the case.
The case is SEC v. Tourre, 10-03229, U.S. District Court, Southern District of New York (Manhattan).