Securities Law

Former Goldman Sachs trader is found liable for securities fraud in big SEC win

A former Goldman Sachs vice president has been found liable for securities fraud for misleading investors about a mortgage investment created with the help of a hedge fund that bet against its success. Investors lost $1 billion while the hedge fund profited, the Securities and Exchange Commission had alleged.

Fabrice Tourre was found liable Thursday on six counts of civil securities fraud in the SEC’s “first significant courtroom victory in a case stemming from the financial crisis,” the New York Times DealBook blog reports. According to the Wall Street Journal (sub. req.), “The unambiguous result surprised many lawyers who had watched the proceedings, expecting that the esoteric subject matter and more than two weeks of conflicting testimony would make a clear-cut victory unlikely.”

Tourre could be required to forfeit profits or pay fines ranging from from $5,000 to $130,000 for each violation, according to the Times. He had rejected a settlement that included a fine and a ban on working in the securities industry with the right to reapply in two years, sources told the Wall Street Journal.

Tourre had left his job at Goldman, though it was paying for his defense, and he is pursuing a doctorate in economics. As he left the Manhattan courthouse, he was carrying a copy of The History of the Decline and Fall of the Roman Empire, according to the Times account.

At trial, Tourre defended a controversial note to his girlfriend as “a silly romantic email.” It read: “The entire building is at risk of collapse at any moment. Only potential survivor, the fabulous Fab (as Mitch would kindly call me, even though there is nothing fabulous about me…) standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all the implications of these monstrosities.”

Critics have questioned why the SEC pursued Tourre, a midlevel employee (there were many vice presidents), rather than higher ups. Juror Beverly Rhett, a retired teacher, echoed that view when she said of Tourre, “I could characterize him as somewhat of a scapegoat.”

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