The former Goldman Sachs vice-president Fabrice Tourre has been found liable for defrauding investors in a complex subprime mortgage deal that left them nursing $1bn (£756m) in losses when the financial crisis tore through the housing market.
A federal jury of nine men and women decided against the 34-year-old French national on their second day of deliberations in what is one of the highest-profile cases to emerge from the financial crisis. Mr Tourre now faces the prospect of a hefty fine. He could also be barred from working on Wall Street after the jury found him liable on six of the seven counts of violating securities laws that had been levelled against him.
Facing criticism for its failure to pursue individual bankers in the aftermath of the crisis, the Securities and Exchange Commission, the body responsible for policing US markets, had lined up its top lawyers against Mr Tourre, whose defence was paid for by Goldman Sachs.
“We are gratified by the jury’s verdict,” Andrew Ceresney, the co-head of SEC’s enforcement arm, said. “We will continue to vigorously seek to hold accountable, and bring to trial when necessary, those who commit fraud on Wall Street.”
Goldman Sachs was not part of the trial, having settled with the SEC by paying $550m in a deal under which it did not admit or deny any wrongdoing.
The case centred on a complex mortgage-based security called Abacus. Mr Tourre worked on the security while employed by Goldman Sachs, and the SEC claimed that he had misled investors who backed Abacus by failing to inform them about the role of a prominent Wall Street hedge fund called Paulson & Co.
The Paulson fund helped select the mortgages that made up Abacus. The fund then placed bets against the security, in contrast to investors such as ABN Amro, who backed Abacus. When the financial crisis depressed mortgage values, the security collapsed, earning a profit for Paulson – but leading to a combined loss of around a $1bn for investors like ABN, which is now owned by the Royal Bank of Scotland. The fund, which was said by the SEC to have made a profit of a similar amount, was not accused of any wrongdoing.
Although the trial has ended in a victory for the regulator, critics have questioned the SEC’s decision to go after a mid-level Goldman employee after settling with the powerful Wall Street bank.
Responding to the jury’s verdict, Goldman Sachs said: “As a firm, we remain focused on being more transparent, more accountable, and more responsive to the needs of our clients.”