He would rather fight than settle. That appears to be the situation Fabrice Tourre has cast himself in, despite the eagerness of his employees to settle fraud charges against them. Mr. Tourre has the distinction of being the only individual named in the Securities and Exchange Commission lawsuit against Goldman Sachs. The SEC said New York-based prime broker and Mr. Tourre didn’t disclose to investors the role played by hedge fund Paulson & Co. in devising and betting against the securities.
A lawyer for the Securities and Exchange Commission said that the two sides have had only “preliminary” discussions about a settlement. Tourre is charged with misleading investors in a collateralized debt obligation allegedly structured and marketed on behalf of hedge fund Paulson & Co. Goldman settled similar charges last month for $550 million without admitting any wrongdoing but acknowledging “mistakes” in the CDO’s marketing material.
According to the original SEC complaint, Goldman created and sold collateralized debt obligations linked to subprime mortgages in early 2007, as the U.S. housing market faltered, without disclosing that Paulson helped pick the underlying securities and bet against the vehicles. A CDO is a structured security backed by an asset, in this case mostly mortgage-backed bonds. CDOs are sold in a series of different tranches, each with its own unique risk characteristics. The 2008 market crises was in part blamed on credit rating agencies improperly evaluating the risks of CDOs and other asset-backed securities, which tended to exacerbate risk to market participants.
Tourre, a vice president at Goldman, is currently on leave from the firm. He was the point man on the controversial CDO, and counted Paulson among his clients.
“I would characterize us as having very preliminary discussions a while back and that’s all,” Lorin Reisner, the SEC lawyer, said today.
The SEC said it was ready to turn over nearly one million documents in the case to Tourre’s lawyers, who said they would need nine months to review them. The SEC plans to depose 25 people in the case; Tourre’s side as many as 50.