Big fine imposed on ex-Goldman VP Fabrice Tourre in SEC case

A US judge on Wednesday ordered former Goldman Sachs Group Inc trader Fabrice Tourre to pay more than $825,000 after a jury found him liable for defrauding investors in a subprime mortgage product that failed during the financial crisis.

The decision by US District Judge Katherine Forrest in Manhattan came in one of the prominent Wall Street cases linked to the crisis, and one of the few in which an individual was held personally responsible for wrongdoing.

Tourre was ordered to pay $650,000 in civil fines, and give up an additional $175,463 bonus plus interest linked to the transaction at the heart of the US Securities and Exchange Commission case.

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[caption id=“attachment_79074” align=“alignleft” width=“380”]  Tourre was ordered to pay $650,000 in civil fines, and give up an additional $175,463 bonus plus interest linked to the transaction[/caption]

The total payout fell below the roughly $1.15 million, including a $910,000 fine, that the SEC had sought.

But the judge said a stiff sanction for the 35-year-old Frenchman was appropriate, saying Tourre’s fraud lasted for several months and noting what investigators said were his false emails and misleading materials sent to investors.

“He has shown no remorse or contrition,” Forrest added, referring to Tourre. The judge also forbade Goldman from paying Tourre’s fine.

Goldman in July 2010 reached a related $550 million settlement with the SEC. It did not admit wrongdoing but acknowledged and expressed regret that its marketing materials were incomplete.

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SEC enforcement chief Andrew Ceresney welcomed Wednesday’s decision, including penalties he characterized as “significant.”

“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,” he said in a statement.

Tourre resigned from Goldman in December 2012, and is pursuing a doctorate in economics at the University of Chicago.

In a statement, he said he was “deeply grateful for the unwavering support of my family and friends as I consider potential next steps in the legal process.”

SYMBOL OF THE MELTDOWN

Tourre became a symbol of the financial meltdown after the SEC sued him and Goldman in 2010 for misleading investors in a synthetic collateralized debt obligation, or CDO, linked to mortgages called Abacus 2007-AC1.

He became widely known as “Fabulous Fab” after using that nickname in an email cited in the SEC lawsuit.

The SEC accused Tourre of concealing from investors how Paulson & Co, the hedge fund of billionaire John Paulson, had helped put Abacus together and had bet it would fail.

It also accused Tourre of misleading ACA Capital Holdings Inc, which helped choose Abacus assets, into thinking Paulson would be an equity investor in the CDO, rather than bet the other way as part of a massive wager against subprime mortgages.

Paulson, meanwhile made about $1 billion by shorting Abacus, while investors lost the same amount, the SEC said.

“The fraud on ACA was critical to making the transaction work; without ACA as portfolio selection agent, Goldman would not have been able to convince others to invest in the equity of the transaction,” Forrest wrote.

In August, a federal jury found Tourre liable on six of seven civil charges related to Abacus.

Tourre had been slated to teach an honors economics class this spring, but a University of Chicago spokesman on March 4 said those plans had been scrapped. No reason was given.

SENDING THE RIGHT MESSAGE

Tourre’s lawyers had fought against any ban on Goldman reimbursing their client, saying it would be unprecedented, even as they said he had every intention of paying any penalty out of his own pocket.

The judge, however, said letting Goldman reimburse Tourre would send the wrong message to others mulling illegal conduct, though the defendant could seek reimbursement from others.

“To permit Tourre to obtain reimbursement from Goldman, which the jury in this case found to be a co-violator of the securities laws, would undermine the purposes of the civil penalty statutes - to punish the individual violator and to deter future violations,” she wrote.

Goldman did pay Tourre’s legal fees, and has said it had no agreement with Tourre to reimburse him for penalties.

A spokesman for the bank declined to comment on Wednesday.

Forrest also denied an SEC request for an injunction barring Tourre from future securities law violations, saying there was no evidence he planned to return to the industry after finishing his studies in June 2016. But she said the SEC could reapply if he returns in the next three years.

The judge’s decision drew mixed reactions.

“This really sends a loud and clear message that this court is not going to tolerate this conduct,” said David Marder, a partner at Robins, Kaplan, Miller & Ciresi and a former SEC lawyer.

But Dennis Kelleher, chief executive of the non-profit organization Better Markets, said a big fine cannot hide the government’s “indefensible” failure to have brought criminal charges against senior Wall Street executives over the financial crisis.

“Wall Street recklessness, fraud and criminality were at the core of the crash and crisis,” he said. “History will judge prosecutors and regulators harshly for abdicating their duty to enforce the law without fear or favor on Wall Street as they do on Main Street.”

Reuters