Jurors began deliberating Wednesday over whether to hold former Goldman Sachs Group Inc. trader Fabrice Tourre liable for defrauding investors in a complex deal tied to subprime mortgages.
A federal judge in New York dispatched the five women and four men on the jury to consider the fate of Tourre, 34, who for more than three years has fought against U.S. Securities and Exchange Commission claims he misled investors in a deal called Abacus 2007-AC1.
U.S. District Judge Katherine Forrest told jurors it was their job to determine if the SEC had by a preponderance of the evidence met its burden of proof to hold Tourre liable. "You are the sole judges of the credibility of the witnesses," she said.
The jury deliberations follow more than two weeks of testimony in the civil trial. The jurors who will decide the case include a school principal, a medical school graduate, a former stockbroker turned art history teacher, an animator and an Episcopal priest.
A victory for the SEC could help answer critics who say the agency was not aggressive enough in bringing enforcement actions against individuals on Wall Street who played roles in the financial crisis.
The SEC disputes the criticism, pointing to charges it brought against 157 entities and individuals in financial crisis-linked cases and enforcement actions that produced $2.68 billion from defendants, largely in settlements.
The SEC received $550 million in an accord with Goldman Sachs Group Inc. Originally a defendant with Tourre, the investment bank agreed in July 2010 to settle without admitting or denying wrongdoing, although it acknowledged Abacus marketing materials contained incomplete information.
'WALL STREET GREED'
The case against Tourre was a story of "Wall Street greed," with the former Goldman vice president selling investors in a "land of make believe" costing them $1 billion, Matthew Martens, the lead SEC lawyer said during closing arguments.
Originally filed in April 2010, the SEC's lawsuit accuses Tourre of misleading investors in the Ababus synthetic collateralized debt obligation in 2007 by failing to disclose that billionaire John Paulson's hedge fund company helped pick its assets and planned to bet against, or short, the transaction.
The SEC also claims Tourre duped ACA Capital Holdings Inc., a company brought in to select the 90 mortgage securities tied to Abacus, into believing Paulson & Co. Inc. would be an equity investor in the deal.
Investors, including ACA Capital and IKB Deutsche Industriebank AG, lost over $1 billion when the deal turned sour after the U.S. housing meltdown, while Paulson reaped about the same amount in gains thanks to the hedge fund's short position.
Tourre has denied the charges. He told jurors Friday he had not "done anything wrong, as I'm here literally to tell the truth and clear my name."
His lawyers contend the information about Paulson wasn't material to investors in the deal since a synthetic CDO by its nature had to have both a long and short investor in order to work.
Tourre's attorneys contend ACA Capital knew Paulson would short the deal, pointing to testimony by an ex-Paulson executive as well as widespread news reports that the hedge fund was in the midst of a broad bet against the U.S. housing market.
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