In an email sent to an acquaintance in January 2007 and included in the SEC's complaint, Tourre appears to be describing his role in, and thoughts about, an investment deal, dubbed ABACUS 2007-AC1, between a German bank and a Manhattan hedge fund manager, Paulson & Co.
"More and more leverage in the system, the whole building is about to collapse anytime now … Only potential survivor, the fabulous Fab … standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications."
In its April 16 civil suit, the SEC accused Goldman and Tourre of defrauding investors in a mortgage-backed collateralized debt obligation. Specifically, the SEC said, Goldman failed to tell investors that Paulson helped to design the CDO instrument, a synthetic grab bag of mortgage-pool-linked side bets pegged to whether the pools defaulted. Paulson hoped and figured the subprime mortgages in the CDO would go south because, as a short seller, the hedge fund stood to profit on the ABACUS trade if the CDO failed. On the other side of the trade was an investor who was betting on, not against, the mortgage pools, but who never knew that Paulson, an aggressive short-seller monumentally bearish on the housing market, had a hand in picking them.
Despite the seemingly damning email, and others, Goldman originally called the SEC's case "unfounded in law and fact" insisting it made all necessary disclosures about the deal in question. Goldman vowed to fight the charge. In settling last week, Goldman acknowledged that marketing materials for the 2007 deal at the center of the case contained "incomplete information" but it did not admit (nor did it deny) any wrongdoing.
"This now puts Goldman in a difficult position where they are going to have to provide the SEC documents and other information that could potentially be damaging to Tourre, without the SEC having to jump through hoops," said Pitt.
What's unclear, Pitt added, is whether Goldman attorneys will have to turn over any notes the company's legal counsel might have taken in the course of discussing the case with Tourre after the charges were first filed.
Goldman did not return calls for this article. It's unclear what their cooperation in the case against Tourre has entailed so far. An SEC spokesman declined to comment.