Goldman Sachs Group (GS) Executive Director Fabrice Tourre is having his 15 minutes of fame this morning as he testifies before Congress about his role in the Wall Street firm's marketing of mortgage-backed securities, which the Securities and Exchange Commission says were secretly designed to fail.
The young trader's defense provides a vehement denial of the charges. "I deny -- categorically -- the SEC's allegation," the 31-year-old Tourre said before the Senate's Permanent Subcommittee on Investigations, "I will defend myself in court against this false claim."
Tourre denies that the product he created was designed to lose value and that he failed to disclose material information to outside investors in the deal. And he's telling lawmakers that the banks that lost money on the investment were sophisticated financial institutions, not retail investors. In other words, they should have known better.
"The Target of Unfounded Attacks"
"I was an intermediary between highly sophisticated professional investors -- all of which were institutions. None of my clients were individual, retail investors," Tourre said. But that's not all: He claims that he's the real victim here. "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," Tourre said. "I appreciate the opportunity to appear before the Subcommittee to answer these false charges."
Tourre, 31, already seems to be the designated fall guy by his employer, which has also repeatedly denied any wrongdoing. The few details that have emerged about the Frenchman, who has been placed on leave by Goldman, won't help him win friends among members of Congress. First, there's relative youth and his nationality (remember Freedom fries). Of course, like many on Wall Street, Tourre probably has a gigantic ego. As DealBook recently noted, " Mr. Tourre describes himself on his résumé -- now erased -- as being a `trader/structurer of exotic derivatives.'" He even gave himself the nickname "fab Fab." Then there are the racy emails, which show that he was playing two women along with the market.
Given all that's at stake for Tourre, it's amazing that he agreed to testify today about Abacus, the collateralized debt obligation that the SEC charges Goldman cobbled together without telling clients it had been put together with the help of hedge fund manager John Paulson. New York-based Goldman denies wrongdoing. Paulson, who made $1 billion on the deal, has not been charged. Further complicating Tourre's efforts is the fact that top Goldman executives, including CEO Lloyd Blankfein, are also set to testify today. Wall Street will be curious, at a minimum, about what they say.
"Waiting to Pounce"
"This is a tough moment for [Tourre] as he really can't defend himself and needs to be prepared to defend himself in court. So, tipping his hand as to his interpretation of actions gives the SEC time to prepare for this, if he does have his day in court," says Jim Cox, aBrainerd Currie Professor of Law at Duke University School of Law who specializes in securities law, in an email. "And, there should be legitimate fears that the criminal prosecutor is licking his/her chops as well, waiting to pounce."
In preparing for today's hearing, investigators reviewed about 2 million documents as the Senate's Permanent Subcommittee on Investigations prepares to question Toure, Blankfein and six other current and former employees, according to Bloomberg News. Goldman says it lost $90 million on Abacus.
Senators are bound to ask Tourre about his compensation. "In 2007, Mr. Tourre was reportedly awarded in excess of $2 million in compensation, supposedly in part for his work on Abacus," writes Steven Davidoff in The New York Times's Deal Professor column. "But this makes little sense because by the end of 2007, when this bulk of this compensation would typically have been awarded and paid as a bonus, the Abacus sale had already started to go bad.
As Jeff Skilling Went . . .
Indeed, Tourre may want to remember the lesson of former Enron CEO Jeffrey Skilling. At the height of the scandal involving the energy-trading giant in 2002, Skilling accepted Congress's invitation to testify. Skilling, who bamboozled politicians and investors into believing Enron was a vibrant, profitable company, thought he could talk his way out of his jam. He proclaimed: "On the day I left, on August 14, 2001, I believed the company was in strong financial condition."
Of course, Skilling dug himself a deeper hole because his testimony raised more questions than it answered. The former high-flying executive was convicted of multiple felonies and now sits in federal prison though the Supreme Court has agreed to review his case.
Tourre is either a genius or a fool.
DailyFinance reporter Dan Burrows contributed to this report.