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Goldman's 'Fabulous Fab' denies all SEC allegations in court filing

"Fabulous Fab" -- a.k.a. Fabrice Tourre, the Goldman Sachs vice president accused by the Securities and Exchange Commission of committing fraud -- told a federal court Monday that he denies virtually all the allegations in the government lawsuit that claims Tourre and the bank sold a mortgage security that was secretly designed to fail.

Touree "specifically denies that he made any materially misleading statements or omissions or otherwise engaged in any actionable or wrongful conduct in connection with the synthetic collateralized debt obligation," the exotic mortgage security that is at the center of the case, according to a court filing with the Southern District of New York.

Tourre's lawyers, led by Pamela Chepiga of Allen & Overy, ask the court to dismiss the SEC's lawsuit. They say that Tourre prepared a "a robust offering document ... which contained all relevant information relating to the transaction."

The court document says that Tourre could not have been expected to make decisions about legal disclosures. "Mr. Tourre, a French citizen and engineer by training, reasonably relied on Goldman Sachs' institutional process to ensure adequate legal review and disclosure of material information, and cannot be held liable for any alleged failings of that process," the filing says.

Tourre and his employer are taking different paths. Though he is on paid leave from the firm, and his legal bills are covered by Goldman, Tourre has decided to try to clear his name. Goldman, by contrast, agreed last week to pay $550 million to settle the SEC's charges. The bank did not admit wrongdoing, but did express "regret" for including "incomplete information" in marketing materials for a security sold to foreign investors.

Tourre put together the deal that prompted the April fraud suit by the SEC. Deserved or not, the salesman of exotic subprime mortgage securities quickly became one of the faces of the financial crisis.

A young French-born banker, he boasted to his girlfriend in one e-mail released by the SEC that he was the "only potential survivor, the fabulous Fab...standing in the middle of all these complex, highly leveraged, exotic trades he created without necessary understanding all of the implications of the monstruosities!!!"

The crux of the case alleges that a hedge fund named Paulson & Co. was looking for a way to bet on a drop in the housing market and turned to Goldman to create a financial product that would allow such a wager. The fund, led by hedge fund manager John Paulson, essentially bought insurance against the investment -- much like taking out an insurance policy on a person who secretly has a potentially deadly disease.

But Paulson also helped assemble that product by selecting individual securities to include in it. These were mortgage-related securities that Paulson thought were likely to lose value. The SEC claims that the fund's motivations and role were concealed when Goldman marketed and sold the investment, known as Abacus 2007-AC1, to clients who hoped it would gain value.

The investment ultimately lost virtually all its value, costing investors $1 billion.
Tourre has made only public appearance so far--at a April 27 public flogging of Goldman executives before a Senate investigative committee probing the bank. At the hearing, Tourre was adamant about his innocence. "I deny -- categorically -- the SEC's allegation. And I will defend myself in court against this false claim," he told the hearing.

By Zachary Goldfarb  |  July 19, 2010; 6:28 PM ET
 
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