Fabrice Tourre Will Never Sell Synthetic CDOs In This Town Again

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Poor Fab! I, for one, was utterly persuaded that he didn't commit securities fraud by sending an email that he admitted was "not accurate" but not "false," but the significance of that distinction seems to have eluded the jury:

A federal jury found former Goldman Sachs Group Inc. trader Fabrice Tourre liable for misleading investors in a mortgage-linked deal that collapsed during the financial crisis, delivering a historic win for a U.S. regulator eager to prove its mettle inside the courtroom.

The panel of nine jurors reached their verdict during the second day of deliberations, finding Mr. Tourre liable on six of seven claims that he violated federal securities law. ... Mr. Tourre, who left Wall Street to pursue a doctorate in economics, may face a fine and a ban from the securities industry.

I think it'd be a shame to deprive the securities industry of Fab's financial-structuring creativity and proclivity for sending embarrassing emails, but as we've established I'm in the minority here. Fab's jury, anyway, seems not to share my tastes in almost anything; they "appeared distracted or drowsy as witnesses were questioned about esoteric financial matters including the structure of CDOs and credit default swaps" and "appeared more engaged when the testimony turned to Tourre’s late-night e-mails to his then-girlfriend and the difference between smiling and winking emoticons," which is possibly a good set of priorities for deciding a securities fraud case but also possibly not.1

Poor Fab. Here is a sentence:

For the SEC, the verdict offers a rebuttal to critics who have accused the agency of seeking to make fairly junior employees, such as Mr. Tourre, scapegoats for Wall Street's wider failings.

But of course it is exactly not that; it is just proof that the SEC is at least able to make scapegoats of those junior employees. It goes to competence but not intentions. And it's a mixed blessing for the SEC, as its critics are already re-opening the question of "if it's that easy to win against Fab Tourre, why aren't you throwing all the bastards in jail?"2 The SEC has pretty much settled an Abacus-esque CDO case with each big bank,3 meaning that there's presumably an army of Fabs still on Wall Street who've never been hauled before a jury. There's a whole nother army of people who sold mortgages to Fannie and Freddie, and whose banks have now agreed to paynine-figure fines over misrepresentations in those deals too.

Basically the list of nine-figure settlements for securities misrepresentations is endless, and the list of individuals sued for actually making those misrepresentations is Fab. Five years after the financial crisis the SEC has discovered that it can convince a jury to hold individuals responsible for those misrepresentations. Well, an individual. Just the one. Poor Fab.

Former Goldman Trader Found Liable [WSJ]
Michael Lewis: Did Goldman Sachs Overstep in Criminally Charging Its Ex-Programmer? [VF]

1.I mean, to be fair, how engaged you look to reporters is not necessarily an indication of your decision-making priorities. But, yeah. Emoticons.

2.Or at least demanding that they admit their guilt when they agree to pay nine-figure fines, a hobbyhorse that I've never understood but that people are really into. Like, yes, a jury has found Fab liable for fraud, and not Goldman, but on the other hand Goldman has paid $550mm in fines and Fab has not. Yet anyway. We don't know how big the fines will be! But I don't think he has $550 million.

3.Except the one whose CDO legal team was headed by the guy who until recently was the SEC's director of enforcement but hey.

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