Goldman Sachs trader Fabrice Tourre once described himself as “the only potential survivor” of the mortgage meltdown.
But the position of fabulous Fab now looks considerably less secure.
Tourre wasn’t a party to the settlement the Securities and Exchange Commission and Goldman announced Thursday, which means the fraud case against him is still alive. What’s more, the SEC said Goldman has agreed to cooperate in the SEC case against Tourre.
This is not exactly a surprise, but it also isn’t the outcome Tourre was hoping for. Having your deep-pocketed employer roll on you is not ideal, particularly when U.S. prosecutors reportedly have also been looking at the case.
“This is the worst of all possible worlds for an individual involved in these sorts of allegations,” said Pravin Rao, a partner in the litigation practice at Perkins Coie in Chicago.
It may not be quite that: Goldman says Tourre remains an employee and that the firm is paying his legal expenses.
Still, Tourre clearly faces quite a battle to clear his name. The SEC’s complaint described him as the leader of an effort to defraud investors in a 2007 Abacus collateralized debt obligation.
Goldman agreed Thursday to pay $550 million, the most ever for a Wall Street firm, to settle SEC charges tied to that case.
In the settlement, Goldman neither admitted nor denied the fraud allegations. It did acknowledge, though, that it misled investors by failing to disclose the role of a hedge fund manager who was betting against the investments.
Tourre, the SEC alleged, took the lead in that effort, leading astray investors including German bank IKB and bond insurer ACA. IKB and a bank that guaranteed ACA’s investment stand to collect $250 million from Goldman.
Of course, it’s possible that Tourre will also settle and those discussions are simply not as far along. Still, when appeared in Congress two weeks after the SEC filed its case, he fairly puffed out his chest.
“I deny — categorically — the SEC’s allegation,” he told the Senate Government Affairs Subcommittee on Investigations April 27. “And I will defend myself in court against this false claim.”
It is looking very much like he might get that chance, for better or worse.