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Major financial crisis trial kicks off in New York

July 15, 2013|By Andrew Tangel
  • Fabrice Tourre, a former Goldman Sachs mortgage trader, leaves federal court after the first day of a lawsuit being brought against him by the Securities and Exchange Commission.
Fabrice Tourre, a former Goldman Sachs mortgage trader, leaves federal… (Andrew Burton / Getty Images )

NEW YORK -- He’s either a duplicitous Wall Streeter, or just a scapegoat who never lied to investors.

A jury of four men and five women will decide whether Fabrice Tourre, the ex-Goldman Sachs trader dubbed “Fabulous Fab,” defrauded investors in the lead-up to the financial crisis.

Tourre’s civil securities fraud trial -- considered the highest-profile case stemming from the crisis -- got underway in a federal court New York on Monday. 

The U.S. Securities and Exchange Commission claims Tourre secretly worked with a powerful hedge fund to engineer a mortgage investment doomed to fail.

“It was a billion-dollar fraud to feed Wall Street greed,” said Matthew Martens, a top SEC attorney, in his opening statement.

Tourre’s former employer, the giant investment bank Goldman Sachs, settled parallel claims against the firm for $550 million in 2010.

Pamela Chepiga, Tourre’s lawyer, said her client was merely a scapegoat.

The other large sophisticated, institutional investors involved in the deal knew the hedge fund's role, and that it was shorting, or betting against, the investment, Chepiga said.

“Fabrice Tourre never lied to anyone,” Chepiga said.

The SEC says hedge fund Paulson & Co. made $1 billion when the investment -- tied to subprime residential mortgages -- tumbled at the expense of other investors.

The SEC again highlighted Tourre’s colorful emails, one of which infamously described Goldman clients buying the investment as “widows and orphans.”

But Chepiga questioned one email’s role in the case, saying it was merely a late-night personal email taken out of context.

“It’s an old-fashioned love letter to his girlfriend,” she said.

Martens said Goldman actually lost money in the ill-fated deal -- but not on purpose. The New York-based bank could not find enough investors to buy the complex investment, known as a collateralized debt obligation, or CDO.

“Sometimes you get tripped up on your own fraud,” Martens said.

The trial is expected to last three weeks and include testimony from Tourre himself.

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