An ex-colleague of Fabrice Tourre heaped praise on the former Goldman Sachs Group Inc. vice president, saying she was “very impressed” with his detailed knowledge of the complicated mortgage-backed investments he created and sold.
“He was a trusted member of my team that I respected,” said Gail Kreitman, a former saleswoman at the bank, in testimony yesterday in Manhattan federal court.
The compliments, however, weren’t ones Tourre was fishing for. The Securities and Exchange Commission, in its fraud suit against Tourre, alleged he conned ACA Management LLC -- through Kreitman -- into lending its name to a 2007 transaction at the center of the case, one that ended up collapsing in a $1 billion loss for investors when the housing market imploded.
Kreitman, called by the SEC to the witness stand, was a Goldman Sachs saleswoman on ACA’s account. She testified that, while frequently depending on Tourre for details of the deal, she couldn’t remember who gave her a key piece of information aimed at getting ACA involved. By evoking Tourre’s competent reputation as part of their examination of Kreitman, SEC lawyers sought to convince jurors it was he.
Last week, an SEC lawyer played a recorded telephone call in which Kreitman told a former ACA employee, Lucas Westreich, that New York-based Goldman Sachs planned to place “a hundred percent of the equity” in the transaction with the hedge fund run by billionaire John Paulson.
The SEC alleged Paulson’s fund never intended to invest in the transaction, a synthetic collateralized debt obligation known as Abacus 2007-AC1. Instead, Paulson selected assets for the deal and bet they would fail, the regulator claimed. Investors were flattened when the residential mortgage-backed securities underlying Abacus dropped in value with the decline of the housing market.
Tourre, 34, allegedly misstated the role of Paulson & Co., the regulator claimed in its lawsuit. Tourre has denied any wrongdoing.
Kreitman testified she doesn’t remember who told her Paulson was expected to take the equity stake in Abacus. She said she mostly dealt with Tourre and David Gerst, another Goldman Sachs employee, in connection with the deal.
Bridget Fitzpatrick, a lawyer on the SEC’s trial team, introduced e-mails yesterday in which Kreitman and Tourre discussed details of Abacus and of the relationship with ACA.
The SEC claims Paulson, which in 2006 and 2007 was making huge bets against the subprime mortgage market, never intended to invest in Abacus. Tourre let ACA think Paulson was a long investor so it would serve as the third-party agent to select the assets backing up the deal, according to the SEC.
The regulator claimed Tourre believed ACA’s presence on Abacus would lend credibility and attract investors. ACA would never have agreed to participate if it had known the truth, according to the SEC.
After Kreitman concluded her testimony, Alan Roseman, the former president of ACA’s parent holding company, testified Paulson’s investment in Abacus was “critical” to the firm’s decision to participate.
Under cross-examination by Sean Coffey, a lawyer for Tourre, Kreitman expanded her praise of her former colleague.
“I was very impressed with his knowledge,” Kreitman testified. “I was proud to call him a member of the team. I do not remember any instance when he was not responsive and helpful.”
The SEC’s star witness, Laura Schwartz, the senior ACA executive on the transaction, is scheduled to testify as early as today. Tourre himself may take the stand later this week.
The case is SEC v. Tourre, 10-cv-03229, U.S. District Court, Southern District of New York (Manhattan).