A jury has found former Goldman Sachs banker Fabrice Tourre liable for his role in a mortgage deal that lost some investors $1 billion during the subprime crisis. The ruling is a major victory for the U.S. Securities and Exchange Commission.
Tourre, 34, was just one of a team of Goldman employees that worked on a complex investment known as Abacus, which failed, netting investors who bet against the product big profits. But Tourre was the only banker who sent mirthful e-mails to a girlfriend referencing his nickname, “the Fabulous Fab,” and describing the financial products he created as “pure intellectual masturbation.” In one of many such e-mails made public after the financial crisis, Tourre wrote, “I’ve managed to sell a few Abacus bonds to widows and orphans that I ran into at the airport.” The messages helped make the French-born banker with a $1.7 million salary and bonus seem a villain, and the SEC charged him and Goldman Sachs with securities fraud in 2010, alleging that he hid the role of a hedge fund in choosing the assets involved in the deal.
Goldman settled for $550 million without admitting or denying guilt. Tourre chose to have his day in court, and his defenders pointed out that he was merely a mid-level bank employee—hardly the Abacus deal’s mastermind. The SEC has been accused of going after too few Wall Street heavyweights in the years following the financial crisis. It lost a case in 2012 against a mid-level Citigroup executive, after which the jury foreman was quoted as saying, “Why didn’t they go after the higher-ups, rather than a fall guy?”
During Tourre’s trial, the government portrayed Tourre as a heartless banker unconcerned with giving clients complete or accurate information. Tourre’s lawyers tried to minimize the impact of those damaging e-mails. “This is evidence of fraud?” attorney John “Sean” Coffey told jurors during his closing argument. “This is evidence of an evil state of mind? How pathetic.”
After jurors literally slept through portions of the trial’s more esoteric testimony, in which witnesses delved into terms like QIB and WARF scores, they appeared to perk up as focus shifted to Tourre’s personality and his interactions with other key Abacus characters. U.S. District Judge Katherine Forrest labored to keep the proceedings understandable, urging lawyers and witnesses alike to speak in lay terms. She also brought jurors donuts and promised one that she’d be able to make a scheduled cruise departure on time.
Tourre may regret his risky legal strategy. His lawyers called no witnesses on his behalf, resting their defense immediately after the SEC ended its own, apparently in the belief that the government had not made an adequate argument. That obviously was not the case. The jury found Tourre liable on six of seven claims.
Because this was a civil, not criminal, trial, Tourre won’t be going to jail. He faces the possibility of fines and a ban from the securities industry. Tourre left Goldman Sachs in 2010 and has been pursuing a Ph.D. in economics at the University of Chicago.
“We are obviously gratified by the jury’s verdict and appreciate their hard work,” lead SEC lawyer Matthew Martens said.