Jurors in the U.S. Securities and Exchange Commission’s case against Fabrice Tourre heard a much-fought-over phone call the SEC is using as evidence that Tourre misled a key participant in the 2007 transaction at the center of the fraud case against him.
An SEC lawyer today played a recording of the phone call, between Gail Kreitman, a former Goldman Sachs Group Inc. saleswoman, and an employee of ACA Management LLC, the firm that was paid to select the mortgage-backed securities underlying the deal, known as Abacus 2007-AC1.
The SEC claims Tourre, 34, a former Goldman Sachs vice president, hid from investors the role of the Paulson & Co. hedge fund in helping select the assets, which it was betting would fail. Tourre also misled ACA into thinking Paulson, run by billionaire John Paulson, was making an equity investment in Abacus, rather than taking a purely short position, the SEC alleged.
In the Jan. 17, 2007, call, Kreitman told the former ACA employee, Lucas Westreich, that Goldman Sachs planned to place “a hundred percent of the equity” with Paulson. Kreitman said she doesn’t remember who told her Paulson was expected to take the equity stake in Abacus. She told jurors that she mostly dealt with Tourre and David Gerst, another Goldman employee, in connection with the deal.
Evidence presented in the case shows Paulson wasn’t planning an equity investment in Abacus. The SEC claims that Tourre falsely told Kreitman that Paulson was long, not short. Lawyers for Tourre lost a pretrial bid to bar the recording from the trial.
The phone call was played at the end of a week that featured dozing jurors, hostile witnesses and a former hedge fund executive claiming the SEC frightened him into changing his testimony.
Jurors are scheduled to hear next week from Laura Schwartz, the SEC’s star witness, who was the senior ACA executive on the Abacus deal, and from Tourre himself. Paulson is expected to testify as a witness for Tourre, possibly on Aug. 1.
Kreitman took the stand this morning after Jonathan Egol, who ran Tourre’s trading desk, concluded his testimony. Egol, now a Goldman Sachs managing director, provided some help to Tourre’s defense today, testifying that he didn’t think Tourre did anything improper in connection with Abacus and that he didn’t think the Abacus portfolio, selected by Paulson and ACA, was a weak one.
Today was the end of the first week of what’s anticipated to be a three-week trial and marks the approximate midpoint of the SEC’s planned two weeks of evidence against Tourre.
Throughout the week, some members of the nine-person jury appeared bored and, at times, drowsy as witnesses discussed esoteric financial terms.
The SEC called three witnesses, Egol and one current and one former Paulson employee, who were designated as “hostile witnesses” by U.S. District Judge Katherine Forrest, allowing SEC lawyers to ask leading questions.
Witness Paulo Pellegrini, a former top Paulson executive who helped the firm make $15 billion betting against the U.S. home mortgage market in 2006 and 2007, picked frequent fights with SEC lawyer Matthew Martens, claiming at one point that the agency tricked and intimidated him in its investigation.
The case is SEC v. Tourre, 10-cv-03229, U.S. District Court, Southern District of New York (Manhattan).