Former Goldman Sachs Vice President Goes On Trial

Three years ago the Securities and Exchange Commission filed civil charges against Goldman Sachs and one of its traders, Fabrice Tourre. They were charged with misleading investors over mortgage-backed securities. Goldman settled and agreed to pay $550 million. Tourre's trial began Monday in a Manhattan court room.

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A former Goldman Sachs vice president went on trial in New York today. Fabrice Tourre is accused of misleading investors about some of those complicated mortgage-backed securities that played a key role in the nation's financial collapse. It's a civil case.

NPR's Jim Zarroli was in the courtroom today and joins me now. And, Jim, first explain what Tourre is accused of actually doing.

JIM ZARROLI, BYLINE: Yeah, the SEC says this case about Wall Street, greed, trickery and deception. Tourre - Fabrice Tourre was involved with building what are called Collateralized Debt Obligations, which are very popular on Wall Street for a long time. They're basically piles of mortgage assets they get bundled into a security. And the SEC says Tourre created this one particular CDO which went by the name Abacus 2007 AC-1. So he helped create this and then he went out and sold it and marketed it to investors, mainly banks - I guess exclusively banks - as an investment.

But the SEC says all along he left out is one very important fact: Goldman had allowed one of its very important clients, a hedge fund company - Paulson & Co. - to select the mortgages that would be underlying the CDO. And Paulson was shorting the security - it was betting against it. In other words, it made money if the CDO failed.

And it's the kind of thing that other investors should have known. I mean, it seems like in other fields it would be a pretty obvious conflict of interest. But the SEC says Tourre kept it from investors. The other investors ended up losing about a billion dollars. Tourre, by the way, he could have settled the case. Goldman also faced charges and settled out of court. Tourre could've done that. He said he didn't want to, he wanted a trial.

CORNISH: So tell us more about him and his career at Goldman Sachs.

ZARROLI: He's 34 years old. He grew up in France. He had a very elite education there, then he came here and went to Stanford. He had an internship at a very competitive, very selective program at Goldman, and then he landed a job after that, which doesn't happen often to most people. He's the kind of numbers guy, tech geek, so he ended up in this very complex world of CDOs.

One of the things everybody remembers about him - I mean, I told people this weekend that I was covering a trial, and nobody knew the case until I said the word Fabulous Fab. That's the nickname he's received. It comes out of an email that the SEC has released, in which he's writing to his girlfriend - this was back before the crash - and he said, yes, basically he said something like the whole housing market is going to collapse and the only one who will still be standing is Fabulous Fab.

Now, he kind of uses it and ironically. He says that's what a friend calls him. He didn't think he was fabulous but the term stuck. It's going to, you know, follow him around forever. Today, the judge - the federal judge, Kathleen Forrest, was discussing with the lawyers whether she should use that term talking to the jurors. And you could see Tourre shake his head sort of emphatically.

CORNISH: So, take us back to the courtroom today. What happened in the trial?

ZARROLI: Well, the judges made clear she wants to get this trial done very quickly in three weeks. So she's moving things along. The jury of nine people was selected by lunchtime. And then right after lunch came the opening statements. You know, both the SEC lawyers and the defense really have their work cut out for them. This is a complicated case. To understand what Tourre is supposedly guilty of, you have to know something about or understand something about Collateralized Debt Obligations.

The judge even had to ask the lawyers today, you know, she said: Have a heart, don't overwhelm the jurors with gibberish. You know, complicated terms like super senior swap transactions. She said, you know, even a term like trading desk, you know, it isn't necessarily going to be clear to jurors - mere mortals don't know what a trading desk is.

CORNISH: That's NPR's Jim Zarroli in New York. Jim, thank you.

ZARROLI: You're welcome.

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