The Lessons of the Fabrice Tourre Verdict

Fabrice Tourre, aka “Fabulous Fab,” was a mere cog in the Wall Street machine that, in 2008, crippled the global financial system and sent the world economy into a deep slump. The former Goldman Sachs Group Inc. vice president’s trial, though, goes to the heart of the lessons we must learn from that experience.

A jury Tourre liable for misleading investors in a 2007 mortgage deal. Known as Abacus 2007-AC1, the deal allowed investors to make side bets on the performance of bonds backed by home loans made to shaky borrowers. At issue was whether Tourre knowingly concealed the role of hedge fund Paulson & Co. Inc., which was betting that the borrowers would default. By disguising Paulson’s short bet, Goldman -- through Tourre as its salesman -- was able to convince others, including Germany’s IKB Deutsche Industriebank AG, to take the opposite side of Paulson’s bet.