Goldman Sachs Group's Fabrice Tourre, accused of creating a product that led to a U.S. Securities and Exchange Commission civil fraud lawsuit, on Tuesday denied the regulator's charges and allegations that he or the bank misled investors.
In prepared testimony before the Senate Permanent Subcommittee on Investigations, Tourre vowed to defend himself in court against the SEC lawsuit, and said he "categorically'' denied the regulator's allegation that he failed to disclose material information about the product, ABACUS 07 AC-1.
The SEC sued Goldman and Tourre on April 16. It contended that Goldman failed to tell investors that it had allowed the hedge fund firm Paulson & Co to choose securities for the ABACUS transaction that it believed would actually lose value.
Paulson & Co. is believed to have made $1 billion from the transaction, roughly the same amount other investors lost. The firm and its principal John Paulson have not been charged.
In his testimony, Tourre said he never told ACA, the portfolio selection agent, that Paulson & Co. would take an equity or long position in the Abacus transaction, and was "surprised'' that ACA could have thought otherwise.
He also said the transaction "as not designed to fail,'' that Goldman had no economic motive for it to fail, and that he did not mislead ACA or the German bank IKB, two major investors in the transaction.
"While Paulson, Goldman Sachs and IKB all had input'' into the portfolio, "ACA ultimately analyzed and approved every security in the deal,'' he said.
"When Goldman Sachs represented to investors that ACA selected the referenced securities, that statement was absolutely correct,'' Tourre added.
Other Goldman officials are also expected to testify before the Senate subcommittee today, including Chief Executive Lloyd Blankfein.
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