Tags: SEC | Goldman | Spotlight | Fabrice | Tourre

SEC Case Forces Goldman Bond Trader Into Spotlight

Tuesday, 20 Apr 2010 01:29 PM

On Wall Street, where fortunes are made and lost in a minute, reputations are built up and destroyed just as quickly.

That's how a well-paid but little-known bond salesman can become headline news in one of the biggest securities enforcement cases against a major Wall Street bank in years.

It's also how a soft-spoken hedge fund manager, long considered a genius investor, can suddenly look a bit tarnished.

The bond trader is Fabrice Tourre, the lone Goldman Sachs executive charged on Friday by the U.S. Securities and Exchange Commission in a civil case arising from Goldman's underwriting and sale of a now-busted $2 billion synthetic collateralized debt obligation (CDO).

The soft-spoken hedge fund manager is John Paulson whose big hedge fund made a cool $1 billion by helping Goldman package the CDO and then betting against it.

The SEC charged both Goldman and 31-year-old Tourre, who was born in France and graduated from Stanford's School of Engineering with a masters in Management Science and Engineering, with "making materially misleading statements and omissions" in marketing the deal to institutional investors.

No one from Paulson & Co., the fund founded by Paulson, was charged or implicated. In fact, SEC officials said there was no basis for filing civil charges against the hedge fund.

It's a different story for Goldman and Tourre, who could not be reached at his London office on Friday.

The SEC alleges they failed to disclose to investors buying the CDO tranches that Paulson & Co. had played a major role in picking the underlying mortgage securities that went into the CDO. The deal was called Abacus 2007-AC1.

Regulators say Tourre and Goldman also failed to tell investors that Paulson and Co stood to benefit from the poor performance of the CDOs because the fund was betting on a decline in the value of the complex security.

The SEC sprinkled emails from Tourre throughout the 22-page complaint, and they paint an unflattering picture of the young executive who recently moved to Goldman's London offices.

In early 2007, Tourre was caught writing to friends and associates that the "CDO biz is dead" and that Goldman was in a race against time to get the Abacaus 2007 deal done.

In one email, Tourre, who attended two of the best Paris high schools, comes off projecting his own self-importance.

"The whole building is about to collapse anytime now," he wrote to a friend. "Only potential survivor, the fabulous Fab standing in the middle of all these complex, highly leveraged, exotic trades he created without understanding all of the implications of those monstrosities!!"

Paulson strongly defended his fund. "As the SEC said at its press conference, Paulson is not the subject of this complaint, made no misrepresentations and is not the subject of any charges," a Paulson spokesman said in a statement. "Paulson did not sponsor or initiate Goldman's Abacus program."

Still, some in the hedge fund world wonder whether investors will get nervous and head for the exit.

Paulson's shrewd bet against the mortgage market has been well-chronicled in the business press and in a book by Wall Street Journal reporter Gregory Zuckerman called "The Greatest Trade Ever." And it's a bet that was done by other hedge funds that wagered on the collapse of the housing market.

Now, some investors may take a second look at that well-timed trade in light of the SEC action against Goldman.

Indeed, Paulson's one-time co-manager spoke with financial regulators in 2008 when they approached the firm on trying to understand these securities better, a source close to the investigation said.

Italian-born Paolo Pellegrini, who attended Harvard Business School with Paulson, has gone on to start his own hedge fund and now lives in Bermuda.

With the newfound riches from his trade of a lifetime, Paulson bought a spread in Manhattan's most exclusive new building on the southern edge of Central Park at 61st Street, where Goldman Chief Executive Lloyd Blankfein also lives.

© 2017 Thomson/Reuters. All rights reserved.

   
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On Wall Street, where fortunes are made and lost in a minute, reputations are built up and destroyed just as quickly. That's how a well-paid but little-known bond salesman can become headline news in one of the biggest securities enforcement cases against a major Wall...
SEC,Goldman,Spotlight,Fabrice,Tourre
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2010-29-20
Tuesday, 20 Apr 2010 01:29 PM
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