July 25, 2013 in Business

Ex-Goldman Sachs trader admits inaccuracy

Larry Neumeister Associated Press

NEW YORK – 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 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’s 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 earned $1 billion on the transaction when the housing market failed and Goldman Sachs made millions of dollars in fees on the transactions.

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