Fabrice Tourre: “I deny — categorically — the SEC’s allegation. And I will defend myself in court against this false claim.”

Here’s what Mr. Fantabulous is going to say in about an hour. Imagine this read with what one hopes is (fingers-crossed) a thick accent and an general attitude of “Let’s make zees quick, I have a match to be at by noon. Idiots.”

APRIL 27, 2010

Chairman Levin, Dr. Coburn and Members of the Subcommittee. My name is Fabrice Tourre, and I work at Goldman Sachs International in London. Thank you for the opportunity to appear before the Subcommittee. I have worked at Goldman Sachs since 2001. Between 2004 and 2007, my job was primarily to make markets for clients. I made markets by connecting clients who wished to take a long exposure to an asset — meaning they anticipated the value of the asset would rise — with clients who wished to take a short exposure to an asset — meaning they anticipated the value of the asset would fall. I was an intermediary between highly sophisticated professional investors — all of which were institutions. None of my clients were individual, retail investors.

The structured products on which I worked fill an important need for these sophisticated financial institutions. To the average person, the utility of these products may not be obvious. But they permit sophisticated institutions to customize the exposures they wish to take in order to better manage the credit and market risks of their investment holdings.

Mr. Chairman, as you know, the Securities and Exchange Commission (“SEC”) recently filed a civil suit alleging that I failed to disclose to investors certain material information regarding a transaction that I helped to structure called “ABACUS 07 AC-1”. I deny — categorically — the SEC’s allegation. And I will defend myself in court against this false claim.

Since the suit was filed, there have been many questions raised about the 07
AC-1 transaction and my role in it. I appreciate the opportunity to answer those
questions, and I want to make a few points absolutely clear.

First, the only two investors in this transaction, ACA and IKB, were institutions with significant resources and extensive experience in the CDO market. ACA was a specialty financial services company that, at year-end 2006, managed 22 CDOs with approximately $16 billion in assets. IKB, a large German bank, had a separate mortgage group and was an active participant in the CDO market.

According to IKB, as of January 2007, they had launched and managed more than
$16.8 billion of CLOs and CDOs and viewed securitizations and CDO investments
as an integral part of their business model.

Second, I never told ACA, the portfolio selection agent, that Paulson & Company would be an equity investor in the AC-1 transaction or would take any long position in the deal. Although I don’t recall the exact words that I used, I recall informing ACA that Paulson’s fund was expected to buy credit protection on some of the senior tranches of the AC-1 transaction. This necessarily meant that Paulson was expected to take some short exposure in the deal. Moreover, from the early stages of the transaction in January 2007 to its completion several months later, none of the offering documents, including the term sheets, flip book and offering circular, provided to ACA indicated that Paulson’s fund would be an equity investor.

If ACA was confused about Paulson’s role in the transaction, it had every opportunity to clarify the issue. Representatives of Paulson’s fund participated directly in all of my meetings with ACA regarding the transaction. I do not ever recall ACA asking me or Paulson’s representatives if Paulson’s fund would be an equity investor. Indeed, ACA and Paulson had several discussions about the transaction and at least one meeting without any Goldman Sachs representatives present. Quite frankly, I am surprised that ACA could have believed that the Paulson fund was an equity or long investor in the deal.

Third, the AC-1 transaction was not designed to fail. ACA and IKB were two of the most important clients of my desk. Moreover, the securities referenced in the transaction did not underperform the other securities of that ratings class and vintage. All of the securities of that ratings class and vintage performed poorly because the subprime mortgage market suffered a broad collapse. Goldman Sachs also had no economic motive to design the AC-1 transaction to fail. Quite the contrary, we held long exposure in the transaction just like ACA and IKB. When the securities referenced in AC-1 declined in value, we lost money too. Goldman Sachs’ overall losses in connection with the transaction exceeded $100 million,
including $83 million with respect to the retained long position.

Finally, ACA selected the portfolio of securities referenced in the transaction — not Paulson & Company. ACA had sole authority to decide what securities would be referenced in the transaction, and it does not dispute that point. Neither the Paulson fund nor Goldman Sachs could dictate to ACA the securities referenced in the deal. Paulson’s fund made suggestions to ACA, as did IKB and Goldman Sachs. And the SEC complaint concedes that ACA rejected most of Paulson’s suggestions while accepting others. So, while Paulson, Goldman Sachs and IKB all had input into the reference portfolio for AC-1, ACA ultimately
analyzed and approved every security in the deal. Thus, when Goldman Sachs
represented to investors that ACA selected the referenced securities, that statement
was absolutely correct.

Mr. Chairman, the last week has been challenging for me and my family, as
I have been the target of unfounded attacks on my character and motives. I
appreciate the opportunity to appear before the Subcommittee to answer these false
charges. I wish to repeat — I did not mislead IKB or ACA, two of the most
sophisticated institutional investors in these products anywhere in the world. I will
be pleased to answer any questions that the Subcommittee may have.

(hidden for your protection)
Show all comments

92 Responses to “Fabrice Tourre: “I deny — categorically — the SEC’s allegation. And I will defend myself in court against this false claim.””

  1. Anonymous says:

    $5 if he winks at one of the Congressional staffers during his testimony

    “The question is not whether we took a few liberties with our female party guests….

    We did.”

  2. Anonymous says:

    Let them eat cake

  3. Anonymous says:

    Good Luck Fabrice, I think my wife buys your product for our laundry, let’s see who has more money, the Feds or you to fight this. You are going to get your clock cleaned today. You will be fired from GS in under six months.
    You also sound like a punk in the e-mails to your girlfriend, if you didn’t money, you would never get laid.
    Good Luck loser

  4. Guesty Guest says:

    He also went on to proclaim:

    “I’m the king. I’m the king. I’m the king of Memphis Ten-e-see. I knocked that Lawler out….. I’mma knock him out again”

  5. Anonymous says:

    sorry 3, how do you “money” again?

  6. Anonymous says:

    “I surrender”

    -The French

  7. close but no cigar says:

    Missed it by a little. The Fab’s complete first draft of his testimony is below:

    Ladies and Gentlemen, I’ll be brief.

    The issue here is not whether we broke a few rules, or took a few liberties with our favorite female guest, Dick Bove. We did.

    But you can’t hold a whole institution responsible for the behavior a few greedy, twisted junior bankers. For if you do, then shouldn’t we blame the whole investment banking system?

    And if the whole investment banking system is guilty, then isn’t this an indictment of our financial system in general?

    I put it to you, fat bastard (I mean Senator) Levin, isn’t this an indictment of our entire capitalist system?

    Well, you can do what you want to the Vampire Squid, but we’re not going to sit here and listen to you badmouth the United States of America!

  8. guest says:

    A Frenchman fight for himself, god or country……Yeah, Right!!! LOL!!! Good one!

    A trying time for him and his family….oh…poor baby….next time don’t write faggy emails and you won’t have anything to be embarrassed about.

    Helpful Hint to The Fab: Let Lloyd handle the Q&A session…..

  9. Sturgeon says:

    Maxine W (aka as Mad Max): Fabulous, you are from France, right?
    Fab: Yes, Madame
    It is funny in Europe we do the same stuff but we have small differences.
    Maxine: How do they call a bond in France?
    Fab: Obligation.
    Maxine: Oh! Is that because of the metric system?
    Fab: Yes Madamm
    Maxine: How do they call a CDO?
    Fab: A CDO is a CDO, but we call it “le CDO”

  10. guest says:

    What is this “Thank you for the opportunity to meet with the subcommittee today” bullshit?

    If I’m ever in front of these clowns my testimony will include:

    “I resent the fact that a bunch of incompetent hacks who couldn’t hold a real job for 5 minutes actually have the legal right (and audacity!) to force me to come here and listen to your dribble. At least make it quick, Bitches! I’ve got cities to pillage!!!”

  11. anon says:

    serving up french fries in the capital today! homeboy is going to fry!

  12. Pietro_F says:

    @5 He meant “If you weren’t so money”

  13. Vincent says:

    I see what you did there @9

  14. Anonymous says:

    God this is gonna be great

  15. Anonymous says:

    Bess – It’s “Idyats”

  16. Fab Moi says:

    Messieurs et Dames du Senat, je vous dis Merde !!! Si vous ne voulez pas de CDO, n’achetez pas de CDO, ohlalaa c’est bien simple, non? Est-ce vraiment ma faute si les investisseurs sont stupides? hein hein?
    (use google translate)

  17. Anonymous says:

    buysiders didn’t like the investment maybe they should have done more due dilligence….like Paulson did. This clown is caught up because some hack bought this garbage.

  18. Anonymous says:

    Good attempt in trying to get Tourre to bitch about GS releasing emails to his girlfriend – pity it didn’t work. Even better in getting him to admit that GS has paid for his lawyers and coached him in what to say.

  19. Anonymous says:

    @1 it’s less Boone and Flounder and more Tabor and Martini.

  20. @16 – no need to translate it, Ah’ ken spik French, Ah’ lerrrned frrrom ze buk.

    PS/De Pedes Moches still rock.

  21. fab's blab says:

    What this VP did was probably being replicated across numerous CDO origination desks across the street on both sides of the pond, so it is probably wrong to make him the scapegoat. If you punish him, you should also punish scores of other dealmakers at every active platform in 2006-2008.

    However, his emails to his girlfriend show that he is a moron, and lacks IQ and EQ. Very mediocre, very Goldman!

    Such morons need to be sent to Iraq to be whipped naked in public (and gay guards and nurses to take charge of things after the whipping LOL).

  22. Mark325 says:

    There is no way in the world this guy would remember exactly what he said to clients. 99% of all lies happen on phone calls. Does anyone know if the regulators had access to tapes? How long do firms have to retain tapes of trading desk phone calls, any idea?

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