Will Paulson and Fab Tourre Face the Music? – Civil charges may loom large…
With last week’s news of the SEC”s civil complaint against Goldman Sachs, the media is now discussing whether Paulson & Co. will face litigation for its role in the collateralized debt obligations (“CDO’s”) that led to the charges against Goldman. Specifically the charges relate to a deal purportedly put together by Goldman vice-president, and now co-defendant, Fabrice Tourre, called Abacus 2007-AC1.
Mr. Tourre is being reported as being admired by his Goldman colleagues for what they called his ‘goofy sense of humor’. He was reportedly popular with clients, wooing them over games of tennis and often said he was from a refined French family. Email exchanges from Tourre, who referred to himself as The Fabulous Fab, are purportedly key evidence in the SEC’s complaint against Goldman. Here is an excerpt from the emails:
“More and more leverage in the system. The whole building is about to collapse anytime now… Only potential survivor, the fabulous Fab[rice Tourre]… standing in the middle of all these complex, highly leveraged exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!”
Mr. Touree was a ‘straight-A’ student at the Lycee Henri IV, one of France’s most prestigious schools, housed in 6th Century abbey in Paris. He went on to study maths at the Ecole Centrale Paris, one of the top French universities and obtained a master’s degree from Stanford in the US. The SEC said a formal request would be made for Tourre to return to the country to face charges.
Bloomberg is reporting that Paulson, the world’s third-largest hedge fund manager, may face civil litigation. Paulson issued a statement on Friday in response to the SEC’s allegations against Goldman. In that statement, Paulson stated that it had no authority over the selection of assets linked to the Goldman fund.
Further complicating the matter was that Goldman told investors that ACA Management LLC, a credit risk analysis 
firm, was responsible for portfolio selection and, the SEC alleges, did not disclose that Paulson was responsible for selecting the underlying debt in the CDO. In other news it is also being reported that the CEO of ACA, Alan S. Rosenman, is the partner of Frances “Fran” R. Bermazohn managing director and deputy general counsel of Goldman Sachs….
In related, news here is an article about an email reportedly sent by a Goldman executive to clients on Tuesday disclosing that the firm’s Fundamental Strategies Group might have shared investment ideas with the firm’s proprietary trading group or some clients before sharing them with others which suggests that the firm is becoming more sensitive to such potential conflicts of interest.
Here is a video from CNBC where chairman of the House Financial Services Committee Barney Frank discusses Goldman Sachs:
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