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Ex-Goldman Sachs trader testifies at NYC trial

July 24, 2013

NEW YORK (AP) — A former Goldman Sachs trader told a New York jury Wednesday in a civil case stemming from the mortgage market meltdown that he wasn’t trying to mislead anyone as he put together a transaction that cost investors more than $1 billion.

Fabrice Tourre, 34, was put on the spot as soon as he took the witness stand in U.S. District Court in Manhattan through questions from Matthew Theodore Martens, a lawyer with the Securities and Exchange Commission.

The SEC sued Tourre and Goldman Sachs in 2010, accusing them of selling subprime mortgage securities in 2007 that they knew were doomed to fail. Goldman Sachs settled its end of the case, agreeing to pay $550 million. The SEC is seeking a declaration that Tourre violated securities laws. It wants unspecified penalties and damages and for Tourre to lose any profits he made from the deal.

Martens immediately questioned Tourre pointedly about a January 2007 email he sent to Laura Schwartz, a former executive at ACA Financial Guaranty Corp., a bond insurance company that invested in a package of subprime mortgage securities that collapsed in value with the U.S. housing market.

The email described the structure of the financial product and portrayed Paulson & Co. Inc., led by its billionaire president, John A. Paulson, as a sponsor of the securities, known as Abacus 2007-AC1.

“Was it false?” Martens asked.

“It was not accurate,” Tourre responded, refusing repeatedly to answer the question yes or no.

“Is there a difference in your mind between something being inaccurate or false?” Martens asked.

Tourre said there was. He later added: “I had no intention to mislead anyone with this email.”

Tourre, born in France, worked at Goldman Sachs after coming to the United States in 2000 to study. His state of mind is expected to play a critical role in whether a jury agrees with the SEC’s claims that Tourre tricked investors, such as ACA Financial Guaranty, by making it seem that Paulson was counting on the mortgage-based securities to succeed when it actually was betting on them to fail.

Paulson, which picked some of the securities that the deal was built around, earned $1 billion on the transaction when the housing market failed and Goldman Sachs made millions of dollars in fees on the transactions.

ACA Financial Guaranty Corp. sued Goldman Sachs for fraud and unjust enrichment in state court in New York in 2011, saying it wanted $120 million because it was “misled by Goldman’s fraudulent activities.” It said Goldman Sachs induced the company to take a long position in the mortgage-backed securities “so that Paulson could reap huge profits by shorting the portfolio and Goldman Sachs could reap huge investment banking fees.”

Tourre’s lawyer has told jurors his client never misled investors.

His testimony continues Thursday.

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