Bloomberg News

Tourre Seeks to Keep SEC From Arguing CDO Added to Crisis (1)

May 28, 2013

Former Goldman Sachs Group Inc. (GS:US) executive Fabrice Tourre asked a judge to block the U.S. Securities and Exchange Commission from arguing at his fraud trial set for July that he contributed to the financial crisis.

Tourre, who was sued by the SEC in 2010 over a collateralized debt obligation he helped create, said the government shouldn’t be allowed to present evidence concerning the causes of the 2008 financial crisis and recession when he goes to trial on July 15 in federal court in Manhattan, according to a filing today.

The SEC initially sued the London-based trader in April 2010, saying he defrauded investors by not disclosing that hedge fund Paulson & Co. helped pick the underlying securities for a CDO called “Abacus 2007-AC1” with the intention of betting against them. After reaching a $550 million settlement with New York-based Goldman Sachs, the SEC filed a new claim against Tourre, saying he gave the company “substantial assistance” as it misled investors.

“This is a lawsuit about purported misstatements and omissions, not an inquest into the causes of the Great Recession,” Tourre’s lawyers, Pamela Chepiga and John P. Coffey, said in a memo to U.S. District Judge Katherine Forrest, who is presiding over the case.

The defense lawyers said the SEC has an expert witness, Dwight Jaffee, who is prepared to testify about the financial crisis and CDOs and has written a report titled, “Synthetic CDOs Created a CDO Crisis.” The SEC said his testimony would “help the jury understand the ‘CDO Crisis’ that resulted from complex financial products like the Abacus synthetic CDO that Tourre helped market,” according to Tourre’s lawyers.

“In light of the SEC’s apparent determination to elicit this highly prejudicial, speculative and irrelevant commentary, Mr. Tourre seeks the exclusion of all argument and evidence concerning any allegation that Mr. Tourre, the Abacus 2007-AC1 CDO or synthetic CDOs in general caused or contributed to the recent financial crisis and recession,” according to today’s filing.

Tourre’s lawyers said that even the SEC’s experts dispute the root causes of the financial crisis.

“There is no question that the 2008 financial crisis and subsequent recession have harmed many people, very likely including members of the jury pool and their family and friends,” the defense lawyers wrote. “The SEC’s apparent intention to seek to blame Mr. Tourre for these severe macroeconomics events is a blatant attempt to exploit jury members’ anger and frustration.”

John Nester, a spokesman for the SEC, declined to comment on Tourre’s request.

The case is SEC v. Tourre, 10-03229, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Patricia Hurtado in New York at pathurtado@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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