Ex-Goldman Sachs Group Inc. vice president Fabrice Tourre, found liable for his part in a failed $1 billion investment, was ordered to pay more than $825,000 in the U.S. Securities and Exchange Commission case.
U.S. District Judge Katherine Forrest in Manhattan ruled today that Tourre must pay $650,000 in civil penalties and give up $175,463 of his 2007 bonus, plus interest. He can’t seek reimbursement of the penalties from Goldman Sachs, the judge ruled.
Tourre, 35, was found liable Aug. 1 after a jury trial at which the SEC claimed he intentionally misled investors in a subprime-mortgage vehicle called Abacus 2007-AC1. Tourre lied about the role played by billionaire John Paulson’s Paulson & Co. hedge fund, which helped choose the securities underlying Abacus then made a billion-dollar bet it would fail, the agency said.
The lawsuit was one of the government’s most prominent efforts to fix responsibility for the housing market crash, which helped precipitate the worst economic downturn since the 1930s. Critics have faulted the SEC for not doing more to police the abuses that helped lead to the crisis or to pursue top financial executives they say are responsible.
The SEC’s allegations against Tourre and Goldman Sachs helped spur Congress in 2010 to enact the Dodd-Frank Wall Street Reform and Consumer Protection Act, aimed at averting future crises.
The SEC requested a $910,000 penalty. Forrest today declined to order Tourre, who is in the middle of a six-year economics Ph.D. program at the University of Chicago, not to violate federal securities laws in the future, finding that there’s no evidence he intends to return to Wall Street.
Forrest said that if Tourre tries to work in the securities industry within three years, the SEC may repeat its request.
“I remain deeply grateful for the unwavering support of my family and friends as I consider potential next steps in the legal process,” Tourre said in a statement released by Chris Kittredge, his spokesman at Sard Verbinnen & Co. “I am focused on earning my doctorate in macroeconomics and pursuing an academic career.”
Goldman Sachs, which paid Tourre’s legal fees, settled SEC claims over the Abacus transaction in July 2010 for $550 million, a record at the time. No senior Goldman Sachs executives were questioned in Tourre’s trial.
Dennis Kelleher, president of Better Markets, a Washington-based advocacy group, said today that the fine against Tourre doesn’t hide “the indefensible record of failure” by the SEC and Justice Department to charge any senior Wall Street executives with helping cause the crash.
“Systemic recklessness, fraud and criminality on Wall Street were at the core of the crash and crisis, which didn’t happen because of one junior employee at one bank,” Kelleher said in a statement.
Tourre, called as a witness by the SEC, was compelled to read aloud to the jury e-mails he’d sent his then-girlfriend in which he expressed his affection while musing over the structured investments he assembled and sold.
In one e-mail, Tourre, who is French, quoted a friend’s nickname for him: “Fabulous Fab.” Tourre referred to the investments he was constructing as “monstruousities.” In another e-mail, he joked about selling investments in Abacus to widows and orphans.
“We’re pleased that the judge’s decision imposes the disgorgement amount we recommended as well as other significant penalties for providing false marketing materials to investors,” Andrew Ceresney, director of the SEC’s enforcement division, said today in a statement. “The ruling reflects the SEC’s intent of pursuing meaningful sanctions to punish individuals responsible for misconduct and deter others from violating the federal securities laws.”
The case is SEC v. Tourre, 10-cv-03229, U.S. District Court, Southern District of New York (Manhattan).