A Manhattan jury on Thursday deemed it proven that then-Goldman Sachs employee Fabrice Tourre concealed key information from his clients when selling mortgage securities. In the turmoil, the securities lost value rapidly. There was talk of a 1 billion dollar fraud.
Tourre now faces a fine and a ban from the game. This will be decided later. The banker nicknamed "Fabulous Fab" became a symbolic figure for the hubris of Wall Street men and women shortly after the financial crisis. In an email to his girlfriend, published later, he joked that he also sold junk securities to "widows and orphans". In the trial he regretted this statement.
Among the injured parties was the Dusseldorf-based Mittelstandsbank IKB, which had turned a big wheel in the U.S. mortgage market, speculated and had to be rescued by the German taxpayer with billions of euros. It was one of the first victims of the financial crisis that later saw the U.S. investment bank Lehman Brothers topple over.
The court’s decision represents one of the biggest victories for the U.S. Securities and Exchange Commission (SEC), which initiated the civil proceedings. Although numerous banks have already had to answer for their behavior at the time of the financial crisis, hardly any individual bankers. Goldman Sachs itself had already settled the case three years ago with the payment of 550 million dollars (about 417 million euros).
The whole case revolved around a mortgage paper called "Abacus 2007-AC1". Investors could use this financial product to bet that housing prices in the U.S. would continue to rise. In fact, however, the bubble burst and "Abacus" lost value dramatically. Investors took the hit.
The Securities and Exchange Commission accused Goldman Sachs and the banker responsible, Tourre, of misleading customers when selling the mortgage paper. The bank had concealed from its customers that the powerful hedge fund Paulson& Co. had been involved in the selection of the mortgages contained therein and had then bet on a failure of "Abacus. Paulson was ultimately the winner of the financial bet.
The case had led to widespread discussion of Wall Street’s wrongdoing in 2010. Aggrieved investors and financial regulators accused other investment banks of similar business practices. In part, the banks paid compensation to investors at the time and penalties. From the Goldman settlement, $150 million flowed to Germany to the state development bank K, which had absorbed IKB.