Former Goldman Sachs banker Fabrice Tourre said in his first day on the witness stand that he wasn’t trying to “confuse” anyone about a complex mortgage deal that blew up along with the housing market.
The Securities and Exchange Commission has accused the 34-year-old Frenchman — nicknamed “Fabulous Fab” — of misleading investors about the role of hedge-fund titan John Paulson in engineering the deal, called Abacus.
Investors lost $1 billion on the so-called collateralized debt obligation, or CDO, while Paulson’s firm profited.
The SEC’s lead lawyer, Matthew Martens, highlighted a Jan. 10, 2007, email from a colleague that referenced the structure of the deal, describing it as having a “pre-committed first loss” portion.
Laura Schwartz, a former official at bond insurer ACA Management, testified earlier that this bit of industry jargon is the reason she assumed that Paulson & Co. was backing the deal rather than betting against it.
“I was trying to be as accurate as I could. Unfortunately, that part of the email was not the most accurate,” Tourre told a packed Manhattan federal courtroom.
A so-called pre-committed first loss position usually indicates that the investor is going to buy the risky portion of such deals.
“It was not accurate,” Tourre said of the email, which he sent to his Goldman colleague at the time, Gail Kreitman, who in turn passed it on to Schwartz. “But it was not in the sense of trying to confuse anyone,” he added.
“Is there a difference in your mind between something that is accurate and false?” Martens asked Tourre.
The back-and-forth came five minutes into Tourre’s nearly two-hour testimony, during which Martens tried to portray Tourre as the man solely responsible for the alleged fraud.
The SEC fined Goldman a whopping $550 million to settle charges over the same deal, while Tourre, who was the only banker singled out in the original complaint, refused to settle.
His testimony is the high mark of the three-week trial during which a nine-person jury has been subjected to a barrage of arcane financial terms.
Wearing a dark suit and purple tie, Tourre spoke in rapid-fire English laced with a French accent that prompted the court reporter to ask him to repeat his comments.
“Sorry, it’s my French accent,” he said.
Tourre also appeared to be nervous, knocking over a pitcher of water sitting on the witness stand at one point as he flipped through a big binder of documentary evidence provided by the SEC’slawyers.
Tourre tried to underscore the point that deals like Abacus require that the portfolio selection agent — in this case ACA — pick securities that entice investors to be on both sides of the deal.
“[The portfolio selection agent] needs to select bonds that have enough risk … otherwise no synthetic CDO transaction could occur,” he told jurors.