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SEC prevails as jury finds Goldman's Tourre liable for fraud

A jury found former Goldman Sachs Group Inc vice president Fabrice Tourre liable for fraud for his role in a failed mortgage deal that cost investors $1 billion, giving the U.S. Securities and Exchange Commission a big victory.

Tourre was found liable on six of seven counts by a Manhattan federal jury, in the SEC's highest-profile trial to spill out of its investigations into causes of the 2008 financial crisis.

"We are gratified by the jury's verdict," said Andrew Ceresney, co-director of the regulator's enforcement division. "We will continue to vigorously seek to hold accountable, and bring to trial when necessary, those who commit fraud on Wall Street."

After the jury was dismissed, Tourre raised his eyebrows to one of his lawyers. He and his lawyers left court without commenting on whether he plans to appeal, walking through drizzling rain followed by reporters and camera crews.

U.S. District Judge Katherine Forrest asked both sides to submit proposals by August 23 for what she termed "next steps." The judge will determine any financial penalties for Tourre.

The SEC had accused Tourre, 34, in a civil lawsuit with misleading investors in a product known as Abacus 2007-AC1 by failing to disclose that hedge fund billionaire John Paulson helped choose, and intended to bet against, mortgage securities underlying the 2007 deal.

It also alleged that Tourre misled ACA Capital Holdings Inc, a company also involved in selecting assets for Abacus, into believing Paulson & Co would be an equity investor in the synthetic collateralized debt obligation.

Paulson went on to make billions of dollars in 2007 betting against the U.S. housing market.

The SEC said he made about $1 billion from his short position on Abacus, while investors including ACA and IKB Deutsche Industriebank AG lost about the same amount.

Tourre is pursuing a doctorate in economics at the University of Chicago after formally parting ways with Goldman at the end of 2012.

Goldman agreed in July 2010 to pay $550 million to settle with the SEC over Abacus, without admitting or denying wrongdoing. Tourre parted ways with Goldman in 2012, but the bank paid for his legal defense.

"As a firm, we remain focused on being more transparent, more accountable and more responsive to the needs of our clients," said Michael DuVally, a Goldman spokesman.

Jurors remained largely tight-lipped as they dodged reporters and walked quickly out of the court.

"It was a long, slow process," said Reverend Beth Glover, 47, an Episcopal priest, outside of the courthouse.

None of the jurors would discuss the intricacies of their decision.

"It's been a long day," said Reece Pate, 37, a graphic designer.

SEC Victory

The win could give the SEC ammunition to address critics who have long argued the agency has been insufficiently aggressive in holding individuals on Wall Street accountable for their roles in the events leading to the financial crisis.

"The SEC can tout the victory and use it to show it's been able to go after bad actors associated with financial collapse and do it successfully," said David Marder, a former lawyer with the SEC and partner at Robins, Kaplan, Miller & Ciresi.

The verdict may not assuage all those critics. Dennis Kelleher, chief executive of financial regulation advocacy group Better Markets, said that regardless of the verdict the case was "a waste of SEC resources and efforts" that targeted a junior staffer.

"The SEC is hunting for a headline to cover up their years of total failure to police Wall Street or to go after any senior executives at any of the major firms," Kelleher said on Wednesday, the day before the verdict.

The SEC says it has brought charges against 157 entities and individuals in financial crisis-linked enforcement actions. It has obtained $2.68 billion in penalties and other judgments from defendants, largely through settlements.

The SEC's trial record in financial crisis cases before the Tourre verdict had been mixed.

In a case that also involving a complex mortgage investment, a federal jury in Manhattan in July 2012 cleared former Citigroup Inc manager Brian Stoker on civil charges he misled investors in a $1 billion CDO.

In November 2012, the SEC dropped civil charges against Edward Steffelin, a former managing director at GSC Capital Corp, in light of what a spokesman said was "information that came to light as the litigation progressed.

The lawsuit had accused Steffelin of failing to ensure marketing materials for a $1.1 billion CDO structured by JPMorgan Chase & Co disclosed the involvement of hedge fund Magnetar Capital LLC in selecting assets.

In the Tourre, Stoker and Steffelin cases, three banks that were also sued agreed to pay nine-figure settlements without admitting or denying allegations.

The case is SEC v. Tourre, U.S. District Court, Southern District of New York, No. 10-03229.

[Source: By Nate Raymond, Reuters, New York, 01Aug13]

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