By Bloomberg.com / Patricia Hurtado and Christine Harper
Fabrice Tourre, the Goldman Sachs Group Inc. executive director sued by the Securities and Exchange Commission for fraud, disputed the claims and said he relied on his firm’s legal and compliance department.
Tourre, in a filing yesterday in federal court in Manhattan, denied making any materially misleading statements or omissions related to the 2007 sale of the Abacus 2007-AC1 collateralized debt obligation linked to subprime mortgages.
Goldman Sachs, the most profitable securities firm in Wall Street history, agreed five days ago to settle its role in the case for $550 million and admitted making a “mistake” in marketing materials about the investment. The firm is cooperating in the SEC’s investigation of Tourre, 31, who remains an employee. He is on leave, with legal expenses being paid by New York-based Goldman Sachs.
“The purported claims against Mr. Tourre and the allegations upon which they are based are improperly vague, ambiguous and confusing, and omit critical facts,” the filing said. “Mr. Tourre, a French citizen and engineer by training, reasonably relied on Goldman Sachs’ institutional process to ensure adequate legal review and disclosure of material information, and cannot be held liable for any alleged failings of that process.”
Goldman Sachs created and sold the CDO, which was linked to subprime mortgages, without disclosing to investors ACA Management LLC and IKB Deutsche Industriebank AG that Paulson & Co. helped pick the underlying securities and bet against the vehicle, the SEC said.
Goldman Sachs didn’t admit or deny wrongdoing in the SEC accord, disclosed on July 15. The firm acknowledged it made a “mistake” and that marketing materials tied to the offering had “incomplete information” because they stated that the portfolio was “selected by” ACA Management LLC without disclosing Paulson’s role. The company agreed to pay $150 million to IKB and to pay $100 million to Royal Bank of Scotland Plc, the British government-owned bank that ultimately owned the risk assumed by ACA Management.
Lucas van Praag, a Goldman Sachs spokesman in New York, declined to comment on Tourre’s filing. John Heine, an SEC spokesman in Washington, declined to comment. Tourre is being represented by Pamela Rogers Chepiga, David C. Esseks and Brandon D. O’Neil of the law firm Allen & Overy LLP in New York.
All Relevant Information
In the filing, Tourre said he was aware that Paulson “was considering taking some or all of the short side” of the transaction. He added that the offering document for the CDO contained all relevant information for investors, including the complete portfolio of assets, the fact that no one was purchasing the equity portion of the deal and that a Goldman Sachs affiliate had a short interest and could transfer that interest.
“The portion of the offering document prepared by ACA and for which ACA assumed sole responsibility states that ACA will ‘select the Initial Reference Portfolio,’” the filing said.
In April, Tourre testified alongside two Goldman Sachs colleagues and one former employee at a Senate subcommittee hearing about the company’s business practices. Tourre told the panel at the time that he planned to fight the suit.
Lloyd C. Blankfein, Goldman Sachs’s 55-year-old chairman and chief executive officer, also testified about the firm’s mortgage-securities business in the years leading up to the biggest financial crisis since the Great Depression.
In its complaint, the SEC alleged that Tourre misled ACA into thinking that Paulson planned to invest in the equity, or riskiest piece, of the deal instead of betting against it by buying credit protection.
In a March 7, 2007, e-mail released by the firm, Tourre described the U.S. subprime mortgage market as “not too brilliant” and said one of the firm’s managers told him the “poor little subprime borrowers will not last too long!!!”
In another e-mail released by the firm, Tourre said an index tied to derivatives trading in the market was “like Frankenstein.”
Senator Tom Coburn, a Republican from Oklahoma who serves on the Permanent Subcommittee on Investigations, repeatedly questioned Tourre and other Goldman Sachs executives on why the firm decided to release Tourre’s e-mails, including some that seemed unrelated to the hearing.
“If I worked for Goldman Sachs, I’d be real worried that somebody has made a decision, ‘he’s going to be a whipping boy, he’s the guy that’s getting hung out to dry,’” Coburn told Blankfein during the hearing.
Story at Bloomberg.com