Business

SEC lets big fish go while prosecuting Fab

Remember Fabrice “Fabulous Fab” Tourre, the young bon vivant and Goldman Sachs derivatives trader whose boastful e-mails made him a convenient punch line back in 2010?

It was a time when there was genuine fear on Wall Street that some of its biggest fishes might actually go to prison for their roles in the collapse of the housing market and the economy in 2008.

The execs’ fears proved to be wholly unfounded. In the three years since, the Securities and Exchange Commission has gone after no big fish whatsoever.

Tomorrow, however, it will go after one “petit poisson”: Tourre, who refused to settle with Uncle Sam when Goldman cut a $550 million dollar deal without having to admit or deny fraud for its role.

Yes, the biggest trial to come out of the financial crisis will pit the US government against a young French midlevel derivatives trader working out of Goldman’s London offices.

The SEC has put its top lawyers on the case and over the next few weeks will try to persuade a jury of New Yorkers that Tourre was part of a “conspiracy” to defraud Goldman clients when he helped put together a package of mortgage-backed securities known as Abacus 2007.

Those securities were picked by hedge-fund honcho John Paulson, who correctly believed that the housing bubble would burst, and he wound up shorting Abacus.

The fact that Tourre didn’t tell other clients who went long on the derivatives about Paulson’s role in picking the securities is at the heart of the SEC’s case against him.

That part is clear enough. If a jury thinks that the Goldman institutional clients weren’t sophisticated enough to do their own research on a basket of securities before making a billion-dollar bet, so be it.

A civil conviction of Tourre would send what message? That midlevel securities employees should only deal with the most savvy investors and shouldn’t write damning emails?

No, if we’re lucky it will play out the same way the SEC’s other “big” case did in the same court 11 months ago.

Last summer, the SEC brought a fraud case against a midlevel former Citigroup employee, Brian Stoker, who handled the marketing materials for one of its toxic brews of mortgage securities.

The testimony was complex, but it didn’t take a jury of New Yorkers very long to cut to the chase.

They acquitted Stoker of fraud but only after taking the unprecedented step of asking the judge to read aloud an impassioned note from the jury foreman to the courtroom.

In the note, the foreman wrote, “I wanted to know why the bank’s CEO wasn’t on trial.”

It was a powerful message, and one that the folks in Washington continue to ignore. Perhaps a similar message in a more high-profile case will finally get across.

terrykkeenan@gmail.com