August 2, 2013

On Thursday, Wall Street’s regulator, the Securities and Exchange Commission, won its first suit against an employee of a big American bank involved in bad mortgage deals sold to investors before the financial crash. Fabrice Tourre, a former trader at Goldman Sachs, was found liable on six of seven charges and faces a fine or a ban from Wall Street. Observers have criticized the pursuit of a midlevel employee rather than the bank’s executives. In 2010, the SEC charged Goldman with fraud, but settled for $550 million.


"A former Goldman Sachs trader at the center of a toxic mortgage deal lost a closely watched legal battle on Thursday, giving Wall Street’s top regulator its first significant courtroom victory in a case stemming from the financial crisis.

A federal jury found the trader, Fabrice Tourre, liable on six counts of civil securities fraud after a three-week trial in Lower Manhattan. The case had given both sides — the government and Mr. Tourre — a chance to repair their reputations.

For the Securities and Exchange Commission, a regulator dogged by its failure to thwart the crisis, the case offered a shot at redemption following one courtroom disappointment after another, including two similar mortgage-related cases that crumbled last year.

For Mr. Tourre, 34, who abandoned his trading career to pursue a doctorate in economics and become a teacher, the threat of being barred from Wall Street came second to the black mark on his name.

Five years after Wall Street risk-taking nearly toppled the economy, the S.E.C. has taken only a handful of employees to court in connection with the crisis; most cases have been settled. The agency has not leveled fraud charges against one top executive at a big bank.

“He was the one that didn’t get away,” one of the nine jurors, Beverly Rhett, said after the verdict. “The decision-making was a slow and arduous process,” said Ms. Rhett, a retired teacher who was juror No. 2. “We went over each item with a fine-tooth comb. We looked into the semantics and tried to understand them as best as we could.”'

"Redemption" for the S.E.C.? What a tragic comedy.

Let me reiterate, The case is civil, not criminal and Tourre faces possible fines and a ban from the industry, the BBC reports. He won't spend one single day in jail, let alone prison.

Last month, Dealbook detailed how the SEC fought "vociferously to exclude troves of evidence," from trial, including the fact that Touree was a scapegoat, as his emails made clear.

"The government has argued that Mr. Tourre is part of a “scheme” to defraud investors, but the government has not charged anyone else. The S.E.C. insists that jurors not be told that."

The Wall Street Journal sees the verdict as a victory for regulators:

"For the SEC, the verdict offers a rebuttal to critics who have accused the agency of seeking to make fairly junior employees, such as Mr. Tourre, scapegoats for Wall Street’s wider failings."

Not likely that critics will stop being critical while the Wall Street executives responsible for the financial crisis weren't on trial.

Heidi Moore wrote for The Guardian, "Tourre's trial is the kind of Kabuki theater that regulators love, but which will not actually accomplish the goal of holding anyone really responsible for the financial crisis. Goldman Sachs has already escaped any admission of guilt on the same deal that Tourre is allegedly guilty of putting together."

"Putting him on trial for the mortgage sins of Abacus, or other mortgage securities, is like prosecuting a footsoldier for war crimes. Meanwhile, the generals – the high-ranking executives who gave the orders – continue to collect payouts worth millions of dollars because they are under the protective wing of Goldman Sachs. The SEC most likely knows that it has neither the money nor the clout to reach that far."

Stock up on popcorn for the next episode of Kabuki theater with the S.E.C..

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