The Resolution Law Group: Both Sides Rest in Ex-Goldman Sachs Bond Trader Fabrice Tourre’s Trial For Alleged Mortgage-Backed Securities Fraud

In federal court, both the Securities and Exchange Commission and former Goldman Sachs Group (GS) vice president Fabrice Tourre have both rested their case in the civil trial against the bond trader. Tourre is accused of MBS fraud for his alleged involvement in a failed $1 billion investment connected to the collapse of the housing market. After the SEC finished presenting its evidence, U.S. District Judge Katherine Forrest turned down Tourre’s bid to have the securities case against him thrown out. He denies wrongdoing and says that his career is in now in shambles.

According to the regulator, Tourre purposely misled participants in the Abacus 2007-AC about the involvement of John Paulson’s hedge fund Paulson and Co. The Commission contends that Tourre concealed that Paulson helped select the portfolio of the subprime MBS underlying Abacus—a $2 billion offering linked to synthetic collateralized debt obligations. The latter then shorted the deal by betting it would fail.

The SEC’s complaint points to Tourre as primarily responsible for the CDO, which it says says he devised and prepped marketing collateral for and was in direct contact with investors. The regulator believes that by failing to disclose Paulson’s role, Tourre broke the law. They also contend that instead the bond trader instead told customers that as an Abacus investor, Paulson’s hedge fund expected the securities to go up.

Tourre also is accused of misleading ACA Capital Holdings, which Goldman retained to supervise the deal, about Paulson’s role. ACA would go on to invest in Abacus and insure it.

When the mortgage securities underlying the Abacus became toxic, its investors lost $1 billion. Meantime, the short positions by Paulson made about the same.

Testifying on his own behalf at the civil trial, Tourre told jurors that after the SEC filed its securities fraud case against him in 2010, for over a year Goldman Sachs made him take a leave of absence but kept paying his $738,000 base salary. In 2007, Tourre said, his salary and bonus was $1.7 million, which was tied to profits he made for the firm.

Goldman has already paid $550 million to settle SEC charges against it over the ABACUS 2007-AC1 debacle. The Commission accused the financial firm of misleading investors about the subprime mortgage product.

As part of settling, the financial firm admitted that its marketing materials for the subprime product had incomplete data and it made a mistake when stating that ACA chose the reference portfolio without revealing Paulson’s part in the selection process or that the latter’s interests were counter to that of the collateralized debt obligation investors.

Unfortunately, when the housing market failed, a lot investors that placed their money in subprime mortgage products suffered huge losses, many of which were a result of broker misconduct, fraud, misrepresentations, omissions, and other wrongdoing. At The Resolution Law Group, our mortgage-backed securities lawyers have been helping institutional and individual investors recoup these losses.

If you feel you are the victim of Mortgage Fraud, please do not hesitate to email or call the The Resolution Law Group (203) 542-7275 for a confidential, no obligation consultation.

Lender Litigation, Unlawful Foreclosure, Tarp Money, Mortgage Backed Securities, Derivitives Lawsuits, Insider Trading Lawsuit, SEC Settlements, Ponzi Scheme Lawsuits, Intentional Misrepresentation, Securitized Mortgage, Class Action Securities Lawsuit, Robo-Signing Lawsuit, Lost Equity Litigation, Mortgage Lender Fraud, FINRA Fraud Lawsuit, Suing Banks, Fraudulent Misrepresentation, Short Sale Fraud, Fraudulent Business Practices, Mortgage Litigation, Complex Tort Litigation, Injunctive Relief, MERS Fraud

The Resolution Law Group Lender Litigation: You Might Have A Legal Case If…

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You Might Have A Legal Case If…

  • Your broker falsified your income.

  • Your broker hid his or her fees.

  • You weren’t immediately given a copy of the good-faith estimate and weren’t given an accurate HUD-1 statement breaking down all fees at closing.

  • After signing the contract to refinance your mortgage, you didn’t walk out with a “notice of recission” that explains your rights to cancel the refinance within three business days.

  • You were led into a subprime loan although your credit would have qualified you for a better loan.

  • Your mortgage company lied or decieved you.

  • Your loan was securitized.

  • Your loan transaction was handled by MERS.

  • You were denied for a Loan Modification.

If you, your family, friends, neighbors or associates have been subjected to Mortgage Fraud, please contact The Resolution Law Group at (203) 542-7275 for a confidential, no obligation consultation.

SEC Antifraud Lawsuit Against Goldman Sachs Executive Fabrice Tourre Won’t Be Reinstated, Says District Court

The U.S. District Court for the Southern District of New York has refused the Securities and Exchange Commission’s request to reinstate its antifraud claim against Goldman Sachs & Co. (GS) executive Fabrice Tourre for alleged misstatements related to a collateralized debt obligation connected to subprime mortgages. Judge Katherine Forrest said that the facts did not offer enough domestic nexus to support applying 1934 Securities Exchange Act Section 10(b). To do so otherwise would allow a 10(b) claim to be made whenever a foreign fraudulent transaction had even the smallest link to a legal securities transaction based in the US, she said, and that this is “not the law.” The case is SEC v. Tourre.

The SEC had sued the Goldman and its VP, Tourre, over alleged omissions and misstatements connected with the ABACUS 2007-AC1’s sale and structuring. This 2007 CDO was linked to subprime residential mortgage-backed securities and their performance. The Commission claimed Goldman had misrepresented the part that Paulson & Co., a hedge fund, had played in choosing the RMBS that went into the portfolio underlying the CDO and that Tourre was primarily responsible for the CDO deal’s marketing and structuring.

In 2010, Goldman settled the SEC’s claims by consenting to pay $550M, which left Tourre as the sole defendant of this case. Last year, the court dismissed one of the Section 10(B) claims predicated on $150 million note purchases made by IKB, a German bank, because of Morrison v. National Australia Bank Ltd. In that case, the US Supreme Court had found that this section is applicable only to transactions in securities found on US exchanges or securities transactions that happen in this country. The court, however, did let the regulator move forward under Section 10(b) in regards to other ABACUS transactions, and also the 1933 Securities Act’s Section 17(a).

However, following Absolute Activist Value Master Fund Ltd. v. Facet in which the U.S. Court of Appeals for the Second Circuit earlier this year found that ““irrevocable liability is incurred or title passes” within the US securities transaction may be considered domestic even if trading did not occur on a US exchange, the SEC requested that the court revive the Section 10(b) claim. Although IKB was the one that had recommended the CDO to clients, including Loreley Financing, it was Goldman that obtained the title to $150 million of the notes through the Depository Trust Co. in New York. Goldman then sent the notes to the CDO trustee in Chicago before the notes were moved from the DTC to Goldman’s Euroclear account to Loreley’s account. The Commission said that, therefore, transaction that the claim was based on had closed here.

Noting in its holding that Section 10(b) places liability on any person that employs deception or manipulation related to the selling or buying of a security, the court said that the Commission was trying to premise the domestic move of the notes’ title from the CDO trustee to Goldman at the closing in New York as a “hook” to show liability under this section. The court pointed out that while the title of the transfer that took place in New York was legal and it wasn’t until later that the alleged fraud happened. The “fraud was perpetuated upon IKB/Loreley, not Goldman” so “no fraudulent US-based” title transfer related to the note purchase is “sufficient to sustain a Section 10(b) and rule 10b-5 claim against Tourre” for the transaction.

SEC v. Tourre (PDF)

Morrison v. National Australia Bank Ltd. (PDF)

If you, your family, friends, neighbors or associates have been subjected to collateralized debt obligation, please contact our securities law firm at (203) 542-7275 for a confidential, no obligation consultation.

Lender Litigation, Unlawful Foreclosure, Tarp Money, Mortgage Backed Securities, Derivitives Lawsuits, Insider Trading Lawsuit, SEC Settlements, Ponzi Scheme Lawsuits, Intentional Misrepresentation, Securitized Mortgage, Class Action Securities Lawsuit, Robo-Signing Lawsuit, Lost Equity Litigation, Mortgage Lender Fraud, FINRA Fraud Lawsuit, Suing Banks, Fraudulent Misrepresentation, Short Sale Fraud, Fraudulent Business Practices, Mortgage Litigation, Complex Tort Litigation, Injunctive Relief, MERS Fraud