Ex-Goldman trader Tourre goes on trial for fraud

15th July 2013, Comments 0 comments

The trial of former Goldman Sachs trader Fabrice Tourre, the Wall Street trader who became a face of the excesses of the financial crisis, opened Monday in a US court.

Tourre, a 34-year old Frenchman known as "Fabulous Fab," is charged with fraud in connection with mortgage bonds that lost investors some $1 billion when the market for "subprime" loans burst in 2008.

The Securities and Exchange Commission accuses him of selling the bonds -- so-called synthetic collateralized debt obligations -- to investors even though he knew they were likely to fail.

His former employer, Goldman, has already paid a record $550 million to settle similar charges.

His trial kicked off Monday morning under US District Judge Katherine Forrest and is expected to last two to three weeks.

Forrest told attorneys to keep the discussion as straightforward as possible, meaning they should avoid complicated financial terms like "swaps" or "synthetic derivatives" and should explain their meaning if they are employed.

Forrest also promised to not call Tourre "Fab the Fabulous," the nickname Tourre used for himself in emails about his work and the CDOs he was selling, and has since become widely used.

A graduate of France's Ecole Centrale and of America's Stanford University, Tourre kept a serious expression in court, clad in a black suit with a white shirt and orange tie.

His case is one of numerous highlighting the excesses of Wall Street that led to the crisis, which saw banks and other financial institutions founder and investors rack up huge losses on CDOs that plummeted in value once the US housing bubble imploded in 2007-2008.

At Goldman Sachs in early 2007, Tourre designed the complex "Abacus" CDO investment, which packaged higher-risk mortgage-backed securities.

He is accused of failing to warn investors that a hedge fund headed by John Paulson was involved in creating Abacus, and that Paulson was taking a huge bet against it even as it was being sold to investors expecting positive returns.

The buyers of the securities included Dutch giant ABN Amro and its sister bank IKB of Germany.

When the affair became public in April 2010, US media lambasted the apparent arrogance of Tourre, who refused to apologize during a hearing in Congress.

The case focuses in part on the $2 million Tourre earned in 2007 and a series of private emails where Tourre compared the securities to "monstrosities" and little "Frankensteins" and made fun of the "poor, little subprime borrowers."

"Fabrice Tourre has done nothing wrong. He is confident that when all the evidence is considered, the jury will soundly reject the SEC's charges," his lawyers said in an email sent to AFP.

If found guilty, though, he faces fines and demands to reimburse the losses.

© 2013 AFP

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