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Goldman Sachs Re-Writing History - Fabulous Fab And The Abacus 2007 Story

Companies / Banksters Jul 16, 2013 - 10:49 AM GMT

By: Andrew_McKillop


Goldman Sachs has an army of very smart contract writers, to drag in what Fabrice 'Fabulous Fab' Tourre might well call “les pigeons” in French. The easy hits.

Styled as an ace concocter of financial algorithms, like Abacus 2007, the heads of these creative contract writers are however nearly always close-linked to their really vital parts. The UK Daily Telegraph, 12 July, revealed that: “Emails between Fabrice “Fabulous Fab” Tourre and his girlfriend Marine Serres - a mix of pillow talk and fears over the future of the US mortgage market - have been released by Goldman Sachs in a bid to clear its name over US fraud allegations”.

Goldman, we can note, has already wiggled its way out from any formal charges of wrongdoing and settled with the US Securities and Exchange Commission three years ago - and won't be on trial with Mr. Tourre. The faithful French foot soldier Tourre will be taking the flak.

The court ploy to be used by Tourre, press reports suggest, will be that “he didn't mislead investors” in the mortgage-related contract deals that he concocted, and which went all wrong during the 2008-2009 phase of the financial crisis, also known as the sub-prime mortgage crisis.

Tourre like other Goldman contract writers earned an easy living from spicily rewriting contracts to entice moneyed players to part with their cash – called “investing”. Goldman's actions during the mortgage boom and crash will necessarily be rehashed in coming days or weeks, in vivid detail, during the Tourre trial in a District Court in Manhattan. Not far from where fellow French “financial superman” and Sofitel playboy Dominique Strauss Kahn received his come-uppance. Like Strauss Kahn, Tourre may be forced to pay serious amounts of damages payments.

Several current and former Goldman Sachs employees are set to testify.

As we would expect for this very high stakes courtroom playact, even the history of the trial, to date, has been “redacted” or rewritten and re-edited several times. Goldman Sachs was the employer of Mr Tourre but upon the US SEC filing charges against him, in April 2010, GS quickly distanced itself from the 34 year-old Mr. Tourre, whose CV and previous experience notably include “financial algorithm writing”. At times, comments and press releases coming out of Goldman's Tribeca New York HQ cast Tourre as a loner who almost independently wrote the litigious mortgage-based and related contracts.

At the same time, press comment says that Goldman Sachs will be happy to pay his legal bills.

Tourre's pitch is that he was merely a cog in the mortgage machine of one of Wall Street's most-powerful operators. Simply to keep his job, and the pillow talk with Marine bubbling along, he was obliged to write the contracts that fell apart, one after the other, incurring total loss. We can believe!

The SEC charges against Goldman and Mr. Tourre primarily concern the synthetic collateralized-debt obligation called Abacus 2007-AC1. While the SEC and GS make a point of not going into the details, this way to harpoon and drag in rich players greedy for huge gains from doing nothing, was a basic menu item offered by the mortgage-backed-securities industry until 2008-2009. At the same time, the SEC accuses, Fabrice Tourre was advising certain major clients of Goldman to “bet the other way”, the Abacus algorithm basically being a profitmaker only if the subprime mortgage bubble kept inflating.

Since 2010, there is no problem finding exactly the same “enticing” spin-the-dice contracts on sale in Wall Street windows. When one charlatan bites the dust, five more replace him.

Days after the SEC filed its complaint in 2010, GS through its lawyers set out to deny all and any wrongdoing. Mr. Tourre, who was working in Goldman's London office at the time, was placed on paid leave, and by late April 2010 Goldman Sachs was publishing a slew of Tourre's emails “that appeared relevant to the case”. Many were personal pillow talk messages sent to girlfriend Marine.

Goldman Sachs paid, and pays heavy legal fees to present Tourre as a young arrogant Alpha Male, or in French “un petit mec bitte en avant”. This denigration strategy is what analysts call a typical step by Goldman to head off the efforts by other parties – the losers or pigeons - to select and cherry-pick the documents most damaging to GS.

Since mid-2010, Goldman executives have conceded, in their own way, that the SEC's actions were taking their toll. That year, with full frontal media coverage the firm embarked on an elaborate internal study of its “business security practices”. By July 2010, Goldman had made an out of court settlement to SEC regulators agreeing to a $550 million fine 'without admitting wrongdoing”.

While the firm didn't admit or deny wrongdoing, it did acknowledge that “mistakes” were made. In the present trial of Tourre however, the SEC has no such deal with the French foot soldier.

David Viniar, then Goldman's finance chief, told reporters in late 2010 that Tourre would have to “navigate” that challenge, himself. No doubt prodded, Tourre formally resigned from GS in December 2011 and is described presently as “pursuing a doctorate in economics at the University of Chicago”.

In late 2012, Goldman informed the SEC and Mr. Tourre's lawyers that recorded phone calls “relevant to the case” existed. These include a telephone trace of a Goldman Sachs salesperson, and an executive at  a mortgage securities firm, ACA Financial Guaranty Corp. ACA had been appointed by GS to pick the securities that were packaged into Abacus. ACA's suit for damages against GS was thrown out, but since April 2013 attempts by Mr. Tourre's attorneys to keep the revealing telephone recording out of court have failed.

The high level implications of the Tourre trial are very high. If Mr. Tourre loses and is found guilty, Goldman Sachs will have to admit that a U.S. jury found its mortgage business defrauded investors. To be sure, the Alpha Male arrogance of Goldman Sachs will then seep out on view, again, as the firm hands over a few hundred million extra dollars of fines “without admitting wrongdoing”.

For Tourre however, the trial really is high stakes. He can or may be sentenced to a heavy fine, even a suspended jail term – although the chances that he ever goes to jail, instead of pillow talking with Marine or her replacement “gonzesse”, is very very slim. Tourre may be forced to pay large amounts of damages, and admit wrongdoing, in an exquisitely crafted piece of legal redaction. Some press comments suggest he may have pocketed as much as $1 billion himself, during his Abacus days, but the possible damages payments for this trial may extend into the tens-of-billions range.

By Andrew McKillop


Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2013 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisor.

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