Soon after the Securities and Exchange Commission announced July 15 that it had reached a $550 million fraud charge settlement with Goldman Sachs, shares of the bank soared. Analysts immediately scored it a victory for CEO Lloyd Blankfein.
Meanwhile, back at the SEC's Washington, D.C. headquarters, as a press conference was winding down, Lorin Reisner, the agency's deputy director of enforcement, made it clear the bombshell case was not entirely closed.
Fabrice Tourre, a Goldman vice president and the firm's only employee singled out in the SEC's civil securities fraud complaint, was still on the hook. "There is no settlement with Mr. Tourre," Reisner said. "We are proceeding with that case."
What's more, he added, Goldman has agreed to cooperate in the case against Tourre, who is better known on Wall Street as "Fabulous Fab," a moniker he gave himself in a now infamous email obtained by regulators.
Getting Goldman to agree to cooperate in the SEC case against 31-year-old Tourre (pronounced "Tour") may seem like a whale hunter flipping its prey to extract a barnacle, but in the financial world the curious legal twist is being interpreted as a boldface attempt by regulators to send a message: individual bankers and traders will be held liable for their actions.
In its complaint, the SEC alleges Tourre deliberately misled investors in a complex mortgage-linked derivative deal.
However, there's another possible scenario playing out here, according to Harvey Pitt, former SEC Chairman and now the CEO of Washington, D.C.-based corporate strategy consultants Kalorama Partners. "This isn't about the SEC sending a message," Pitt said. "My sense, and I have no way of knowing, is that Tourre likely would have been presented an opportunity to piggyback on the settlement but for whatever reason he or his lawyers chose not to." "The Fabulous Fab seems to be in the process of being hung out to dry," said Suzanne McGee, author of the book "Chasing Goldman Sachs" and a former Wall Street Journal reporter. "It's hard to call him a scapegoat, based on the contents of some of his not very discreet emails that have come out, but for the SEC he's a much less formidable opponent than Goldman Sachs would have been, so there's less incentive to settle and more incentive to use him to make a broader point."
Efforts to reach Tourre were unsuccessful. His attorney, Pamela Chepiga of the New York law firm of Allen & Overy, did not return several calls and an email message requesting comment. In a court filing July 19, Tourre denied the charges, arguing that he can't be held responsible for any "alleged failings" on the part of Goldman.
His case will be heard by the U.S. District Court for the Southern District of New York. If he's found guilty,Tourre could be banned from the securities industry. He also faces stiff SEC fines, though not likely anywhere near the more than half-billion dollars Goldman just agreed to pay. Tourre has been on paid leave since mid-April when the SEC first brought the charges. A Goldman spokesman said the firm is paying for Tourre's legal expenses.
A French native, Tourre in 2000 graduated from Ecole Centrale Paris, a top French university known for its engineering program. He later earned a master's degree in management science and engineering at Stanford University. By 2001, he was working for Goldman. In 2007, the firm paid Tourre $2 million, the Wall Street Journal reported.