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Former Goldman trader found liable

on August 02, 2013 10:00 AM

NEW YORK — Fabrice Tourre, the former Goldman Sachs trader at the center of a toxic mortgage deal sold to investors on the eve of the financial crisis, was found liable Thursday for civil securities fraud.

Five years after the crisis, he is the only employee of a big U.S. bank to lose a courtroom battle to Wall Street’s top regulator, the Securities and Exchange Commission. The SEC took only a handful of employees to court over the crisis, but most cases were settled.

After two days of deliberation, the nine-person jury concluded that Tourre had misled investors about the mortgage deal, capping a more than two-week civil trial in one of the most prominent cases involving the 2008 crisis.

Of the seven charges facing Tourre, the jury found him liable on six.

Tourre, a 34-year-old Frenchman who is enrolled in a doctoral economics program at the University of Chicago, now faces a fine, or worse, a ban from the Wall Street. The verdict raises questions about his lawyers’ decision not call a single witness, a show of confidence that failed to impress the jury.

Judge Katherine B. Forrest has the final say on monetary sanctions, be it disgorgement of profits made from the trade in question or a fine. The fine could range from $5,000 to $130,000 per violation.

Tourre also faces a ban from the securities industry, but any decision to prohibit him from working on Wall Street, and for how long, lies solely with the SEC.

The SEC’s case against Tourre hinged on the claim that he and Goldman sold investors a mortgage security in 2007 without disclosing a crucial conflict of interest: A hedge fund that helped construct the deal, Paulson & Co., also bet that it would fail.

Lawyers for the former Goldman trader, however, portrayed their client as a scapegoat who was 28 at the time of the crisis. Throughout the trial, the defense lawyers reminded the jury that senior Goldman executives had approved the deal.

“The idea that Fabrice Tourre, a 28-year-old vice president, was conjuring up a $1 billion fraud, or conspiring with others, is just not supported by the evidence,” Sean Coffey, one of his lawyers, said during his closing arguments.

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