Jurors in the U.S. Securities and Exchange Commission’s case against Fabrice Tourre heard a much-fought-over phone call the SEC is using as evidence that Tourre misled a key participant in the 2007 transaction at the center of the fraud case against him.
An SEC lawyer today played a recording of the phone call, between Gail Kreitman, a former Goldman Sachs Group Inc. (GS:US) saleswoman, and an employee of ACA Management LLC, the firm that was paid to select the 90 mortgage-backed securities underlying the deal, known as Abacus 2007-AC1.
The SEC claims Tourre, 34, a former Goldman Sachs vice president, hid from investors in the deal the role of the Paulson & Co. hedge fund in helping select the assets, which it was betting would fail. Tourre also misled ACA into thinking Paulson, run by billionaire John Paulson, was making an equity investment in Abacus, rather than taking a purely short position, the SEC claims.
In the Jan. 17, 2007 call, Kreitman told the former ACA employee, Lucas Westreich, that Goldman Sachs planned to place “a hundred percent of the equity” with Paulson.
Evidence presented in the case shows Paulson never considered an equity investment in Abacus. The SEC claims that Tourre falsely told Kreitman that Paulson was long, not short. Lawyers for Tourre lost a pretrial bid to bar the recording from the trial.
The recording was played at the end of a week that featured dozing jurors, hostile witnesses and a former hedge fund executive claiming the SEC frightened him into changing his testimony.
Jurors are scheduled to hear next week from Laura Schwartz, the SEC’s star witness, who was the senior ACA executive on the Abacus deal, and from Tourre himself. Paulson is expected to testify as a witness for Tourre, possibly on Aug. 1.
Paulson’s bet against Abacus was part of a strategy that made it $15 billion shorting the U.S. home mortgage market. Investors on the other side of the Abacus deal lost more than $1 billion. Goldman Sachs, based in New York, paid a then-record $550 million to settle SEC claims. Paulson and his firm weren’t sued.
The case is SEC v. Tourre, 10-cv-03229, U.S. District Court, Southern District of New York (Manhattan).
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