Former Goldman Sachs Group Inc. executive Fabrice Tourre sent e-mails in 2007, including one calling himself “Fabulous Fab,” that will help prove he intended to commit fraud, a U.S. Securities and Exchange Commission lawyer told the judge set to oversee Tourre’s trial.
“There’s no other way to tell his state of mind, other than what he was writing at the time,” Matthew Martens, the SEC lawyer, told U.S. District Judge Katherine Forrest at a hearing yesterday in Manhattan.
Martens told Forrest the SEC plans to use the e-mails in its opening statement in the trial, set to begin July 15. Tourre, a former Goldman Sachs vice president, is defending civil claims that he misled investors in Abacus 2007-AC1, a synthetic collateralized debt obligation tied to home mortgages.
The trial comes three years to the day after the SEC announced Goldman Sachs’s agreement to pay a $550 million settlement, which was a record at the time, and admit mistakes in marketing Abacus. Since the settlement, Tourre has stood alone against SEC allegations in the case.
John “Sean” Coffey, a lawyer for Tourre, argued yesterday that the e-mails, which Tourre sent to his girlfriend in London, were personal and have nothing to do with the issues in the trial. In one, Tourre called himself “Fabulous Fab,” citing a friend’s nickname for him.
In a Jan. 23, 2007, e-mail, Tourre forwarded to his girlfriend, Marine Serres, an article warning of a possible bubble in overleveraged credit markets. Alternating between English and French, Tourre wrote: “More and more leverage in the system, the whole building is about to collapse anytime now… 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 monstruosities!!!”
In a later e-mail, Tourre called the complex derivatives he was selling “a product of pure intellectual masturbation” and likened a CDO to a “little Frankenstein turning against his own inventor.”
“These e-mails were personal e-mails that I deeply regret,” Tourre told a congressional committee in 2010.
The argument over Tourre’s e-mails came in the final court conference before trial. Coffey argued that Forrest should rule the e-mails inadmissible and prevent the SEC from referring to them in its opening statement. Forrest didn’t issue a decision at the hearing.
In the hearing, Forrest ruled that Tourre’s lawyers may conduct limited questioning of a key SEC witness about the commission’s investigation of her in an unrelated transaction. Laura Schwartz, a former ACA Financial Guaranty Corp. executive who worked on the Abacus transaction with Tourre, is expected to testify that Tourre misled ACA about the role of the Paulson & Co. hedge fund in choosing the assets underlying Abacus. The SEC informed her June 27 that it doesn’t intend to pursue claims against her.
Forrest said Tourre’s lawyers may question Schwartz briefly about the dropped investigation to determine if she is biased against Tourre as a result.
“I don’t want this to be a deep dive into this whole process,” Forrest said. “This is not the heart of the Laura Schwartz cross,” she said, referring to her trial questioning by Tourre’s lawyers.
Both sides told Forrest they expect the trial to take three weeks. In addition to Tourre and Schwartz, trial witnesses will include current and former Goldman Sachs employees, including Jonathan Egol, who was head of Tourre’s trading desk at the time of the Abacus transaction. Paulson & Co.’s founder and majority owner, John Paulson, is also expected to testify.
The case is SEC v. Tourre, 10-cv-03229, U.S. District Court, Southern District of New York (Manhattan).