Goldman Sachs' Fabrice 'Fabulous Fab' Tourre: Wall Street's Fall Guy?
Goldman Sachs Trader Fabrice Tourre May Testify Before Senate Panel Next Week; Could Follow in a Tradition of Supposed Scapegoats
By ALICE GOMSTYN
ABC NEWS Business Unit
April 21, 2010 —
French trader Jerome Kerviel. Former Dick Cheney chief of staff Scooter Libby. Former Marine Lt. Col. Oliver North.
They are the notrious names inextricably linked to some of the biggest scandals in the post-Watergate era, but they have more than that in common: They're also all suspected of being fall guys -- individuals who got the blame not just for their own wrongdoing but for the transgressions of their superiors.
Fabrice "fabulous Fab" Tourre, the only Goldman Sachs employee named in the Securities and Exchange Commission's lawsuit against the firm, is scheduled to testify before the Senate Permanent Subcommittee on Investigations on Tuesday, April 27, Bloomberg reported.
Is Tourre next to join history's gallery of supposed scapegoats?
Some say yes.
"In this case, Wall Street's offering up, essentially, a 31-year-old kid," said Bill Bartmann, the president of investment advisory firm Bartmann Enterprises and a former Goldman client. "I regret anybody going through the circumstances under which he's about to suffer."
The SEC's complaint alleges that Tourre, then a vice president at Goldman, commited fraud by failing to disclose to investors that a hedge fund that helped choose the mortgage-backed securities going into a Goldman-structured investment was the same hedge fund betting against that deal. The hedge fund involved, Paulson & Co., ultimately reaped a $1 billion profit while the deal's investors lost more than $1 billion.
Goldman Sachs has denied the fraud claims.
When asked during a conference call last week why the SEC didn't pursue charges against higher-ranking Goldman executives, SEC enforcement director Robert Khuzami responded, "We charged those that we felt appropriate based on the evidence and the law."
Tourre, Khuzami said earlier during the call, "was the person principally responsible for structuring the deal."
But critics like Bartmann say Tourre must have shared responsibility with someone.
"That whole proposition was handled by a relatively large committee of people," he said. "There are senior managers, senior executives at Goldman who are involved in the decisionmaking process."
Some argue that the SEC's charges against Tourre are egregious because the alleged fraud case itself is flimsy. The investors hurt by Goldman's alleged fraud, they say, were sophisticated companies that knew of the securities chosen for the ABACUS deal and that also knew that someone would bet against the deal.
"There's just not much there," said a veteran derivatives expert who asked not to be named. "The idea that some poor guy has his name attached to something that's this weak -- it's really a shame."
Does 'Fabulous Fab' Deserve Pity?
Tourre has become an infamous figure not only because the SEC charged him but because of the discovery of a playfully-worded e-mail written by Tourre that indicated the trader didn't have a full grasp of his own complicated deals.
"More and more leverage in the system, The whole building is about to collapse anytime now...Only potential survivor, the fabulous Fab(rice Tourre) ... standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities(sic)!!!" Tourre wrote to a friend in January 2007, according to the SEC's complaint.
The pity for Tourre, however, only extends so far, thanks to an enviable pedigree and salary.
A French native, Tourre graduated from Ecole Centrale Paris, a top French university known for its engineering program, in 2000. He went on to the United States, where he 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.
"In this society, we get paid for the risk we take and we then have to bear the consequences of this risk. (Finance is) a highly rewarding industry and its risks usually rise to the same level," Bartmann said. "From that point of view, I do not feel sorry for him."
For now, the consequences facing Tourre don't seem to rise to the level of those brought to bear on Kerviel, Libby and North. The case against Tourre is civil and it's unclear whether criminal charges will follow. Kerviel, Libby and North were all threatened with jail time, though two managed to avoid it.
Kerviel, accused of making unauthorized trades that led French bank Societe Generale to lose $6.7 billion in 2008, reportedly has said that the bank made him a scapegoat and argued that Societe Generale was also to blame for turning a "blind eye" to unauthorized deals as long as they were profitable. He is due to stand trial in June and faces several years in jail if convicted.
Some believe Libby, who was was convicted in 2007 of obstructing an investigation into who leaked CIA agent Valerie Plame's name to the press, was the fall guy for then-Vice President Dick Cheney. Prosecutor Patrick Fitzgerald said Libby kept investigators from learning what role Cheney might have played in the leak. Libby was fined $250,000 and was due to face jail time until President Bush commuted his sentence.
While Libby has been described by others as a fall guy, North has applied the term to himself. Following the Iran-Contra scandal that erupted under the Reagan administration, North was convicted of three felony charges in 1987 connected to the secret sale of U.S. weapons to Iran, the proceeds from which illegally provided U.S. support to Contra rebels in Nicaragua.
His conviction was later reversed on appeal -- North argued that his Congressional testimony, which was supposed to be immune from prosecution, led to his conviction -- and North escaped jail time. In a book published in 1991, North said Reagan knew about the scheme and that the administration pressured him to take the blame and "(e)xonerate the president."
The consequences facing Tourre, thus far, have been professional. Last Friday, Tourre chose to take indefinite paid leave from his most recent position with Goldman at the firm's London headquarters, Goldman sources told ABC News. The firm, meanwhile, has de-registered Tourre with the U.K.'s financial services regulator, the Financial Services Authority. According to a Goldman Sachs spokesperson, Tourre was de-registered because he won't be in contact with Goldman clients during his leave.
Tourre's expected testimony before the Senate Permanent Subcommittee on Investigations next week will come on the same day that Goldman CEO Lloyd Blankfein will appear before the panel. The subcommittee's hearings are part of its investigation into the causes of the financial crisis.
ABC News' Zunaira Zaki, Matthew Jaffe and Daniel Arnall contributed to this report.