French trader at Goldman denies fraud allegations

20th July 2010, Comments 0 comments

A French executive at Goldman Sachs accused of misleading investors about risky assets ahead of the US housing market meltdown denied on Monday fraud charges by securities regulators.

Lawyers for Fabrice Tourre filed a response to the charges by the Securities and Exchange Commission days after Goldman agreed to pay a record 550 million dollars to settle government fraud charges.

Tourre, whose case was not part of the settlement, said in the document that he "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."

The civil charges against Tourre stem from the 2007 sale of a complex investment product called Abacus which was backed by mortgage securities before the collapse of the subprime market.

He was accused of failing to warn investors that a hedge fund headed by investor John Paulson was involved in the selection of the composition of the Abacus, and that Paulson was betting on the fall of the US housing market.

Goldman Sachs in its settlement acknowleged that its investment materials contained incomplete data on Abacus.

Goldman agreed to pay 300 million dollars to the US Treasury and 250 million to investors in the settlement.

Among clients of Goldman's controversial product were German commercial bank IKB and Britain's RBS.

Goldman claimed that it lost 90 million dollars from its own investment in the security.

The type of mortgage-backed securities sold by Goldman in the deal were a key contributor to the financial crisis that peaked in 2008 because many contained risky mortgages.

© 2010 AFP

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