Ex-Goldman Sachs Executive Takes The Stand

Former Goldman Sachs executive Fabrice Tourre took the witness stand Wednesday. The Securities and Exchange Commission charged Tourre with misleading investors who bet housing values would continue to rise back in 2007.

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DAVID GREENE, HOST:

A former executive at Goldman Sachs will take the stand again in his civil fraud trial this morning. Fabrice Tourre is accused of misleading investors about a security he marketed and sold in the months leading up to the subprime mortgage collapse.

Tourre began testifying yesterday afternoon, and NPR's Jim Zarroli was there. Jim, good morning.

JIM ZARROLI, BYLINE: Good morning.

GREENE: So give us the background, here, if you can. What is Fabrice Tourre accused of, exactly?

ZARROLI: This is a really complex case. Basically, Tourre created one of those mortgage-backed securities that was at the center of the housing crisis, and he marketed and sold it to investors. The Securities and Exchange Commission says that Tourre never told investors one very important fact: Goldman had allowed a hedge fund company, Paulson and Company, to play a role in selecting the mortgages underlying the security. And at the time, Paulson was shorting the housing market - in other words, it was betting against subprime mortgages. It wanted them to fail. So you might say it had a big conflict of interest. And the SEC says Tourre never told anyone about that, because Paulson was a big Goldman Sachs client.

GREENE: OK. We're talking about a case where a lot of money is at stake, and this came at a time of the mortgage collapse. What kind of case does the government has so far against him?

ZARROLI: Well, we're in the second week of the trial. A lot of the evidence comes from email, that it was written by Tourre or other people at Goldman. We heard this week from Laura Schwartz. Her firm was hired by Goldman to help select the mortgages that would be, you know, part of this security - underlying this security. And Schwartz said she never knew that Paulson was, you know, betting against these mortgages. Tourre never told her. And she said, you know, if her firm had known that, it wouldn't have wanted to be part of any effort to mislead investors. Now, on the other hand, there was another witness from the hedge fund, from Paulson itself, who testified this week that he told her that his firm was betting against the housing market, which contradicts what she says. So, you know, the question is: Who is this jury going to believe?

GREENE: And Jim, yesterday, Fabrice Tourre actually took the stand himself for the first time.

ZARROLI: Yeah. He was on the stand for about two hours. He seemed very accessible. He made little jokes about his French accent. He said he never meant to mislead anybody. I think the SEC scored an important point against him. They had this email that Tourre had gotten and forwarded to someone else, and it refers to Paulson's equity position. And, you know, in Wall Street terminology, Paulson, the hedge fund, didn't have an equity position, because it was shorting the security. And Tourre never corrected that, so that kind of goes to the point of whether or not he was trying to deceive investors.

GREENE: And Jim, Tourre is facing civil charges. So, I mean, he could face some big fines here. But, I guess, as we follow a case like this, are we learning anything we didn't know about the subprime mortgage collapse?

ZARROLI: I don't know that we're learning much about the subprime mortgage collapse. I mean, I think we're learning something about the inner workings of a big firm like Goldman Sachs. I mean, this is very complicated stuff in a sense the challenge for both the SEC and the defense is getting the jury to understand how things like mortgage-backed securities work. Some things that might seem like routine behavior to a Goldman Sachs trader won't necessarily look that way to a jury of nine people.

GREENE: NPR's Jim Zarroli, thanks very much.

ZARROLI: You're welcome.

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