Fabrice Tourre, the former Goldman Sachs Group Inc. vice president on trial for his role in a failed $1 billion investment, was found liable on six of seven claims by a jury in Manhattan.

The verdict is a victory for the government in one of the most high-profile trials to come out of the financial crisis of 2007-2008. The U.S. Securities and Exchange Commission accused Tourre, 34, of intentionally misleading participants in a 2007 deal known as Abacus about the role played by Paulson & Co., the hedge fund of billionaire John Paulson.

The jury’s finding of wrongdoing may help Goldman Sachs customers in lawsuits against the bank over losses tied to the transaction. Tourre faces unspecified money penalties and a possible ban from the securities industry.

“We are obviously gratified by the jury’s verdict and appreciate their hard work,” Matthew Martens, the lead SEC lawyer, said.

The SEC claimed Tourre hid the fact that Paulson helped choose the portfolio of subprime mortgage-backed securities underlying Abacus, then made a billion-dollar bet it would fail.

Two Weeks

At trial, the SEC presented testimony from 11 witnesses over two weeks. Tourre didn’t call any witnesses, relying instead on his lawyers’ questioning of the witnesses called by the SEC, including Tourre himself.

U.S. District Judge Katherine Forrest took the jurors’ verdict today after two days of deliberations in the case.

“As a firm, we remain focused on being more transparent, more accountable, and more responsive to the needs of our clients,” Michael Duvally, a Goldman Sachs spokesman, said in a statement.

The case against Tourre was one of the government’s last efforts to fix responsibility for the housing market crash, which helped precipitate the worst economic downturn since the 1930s. Critics have faulted the SEC for not doing more to police the abuses that helped lead to the crisis or to pursue top financial executives they say are responsible.

Tourre testified about the Abacus deal before a U.S. Senate subcommittee in April 2010 alongside other Goldman Sachs executives. The firm, which is paying Tourre’s legal fees, settled SEC allegations for $550 million in July 2010, a record at the time. In the settlement, Goldman Sachs acknowledged that marketing materials for Abacus contained “incomplete information.”

More ‘Bigwigs’

No senior Goldman Sachs executives were questioned in the trial. Defense lawyers decided not to call Paulson, the billionaire who runs Paulson & Co., to the stand after saying they planned to do so.

“I, like most of the public, wanted to hear from more Wall Street bigwigs to justify what happened with Abacus,” Anthony Sabino, who teaches law at St. John’s University in New York, said in an e-mail.

The allegations against Goldman Sachs over Abacus helped spur Congress in 2010 to enact the Dodd-Frank Wall Street Reform and Consumer Protection Act, which aimed at reforming the financial system and averting future crises.

Trial Defeat

In addition to the settlement with Goldman Sachs, the SEC claims it has recovered about $2.7 billion from companies and individuals in cases tied to the financial crisis. These include a $285 million settlement with Citigroup Inc., which is being appealed. The SEC suffered a trial defeat last year against Brian Stoker, the former head of Citigroup Inc.’s CDO structuring group, in the same Manhattan federal courthouse where Tourre was tried, just blocks from Wall Street.

“We will continue to vigorously seek to hold accountable, and bring to trial when necessary, those who commit fraud on Wall Street,” Andrew Ceresney, co-director of the SEC’s Division of Enforcement, said in a statement after the verdict.

“As shown by this verdict, we proved that Mr. Tourre, as a Goldman Sachs Vice President, put together a complicated financial product that was secretly designed to maximize the likelihood that it would fail, and marketed and sold it to investors without appropriate disclosure,” Ceresney said.

Tourre has spent part of the time since he was sued by the SEC volunteering in Rwanda and working on a doctorate in economics at the University of Chicago. John “Sean” Coffey, one of Tourre’s lawyers, told jurors in closing arguments that Tourre plans to teach.

No Recollection

During the 11-day trial, jurors heard testimony from Laura Schwartz, a former executive of ACA Management LLC, which was chosen to select the 90 subprime residential mortgage-backed securities that served as the reference portfolio for Abacus, a synthetic collateralized debt obligation.

Schwartz testified she was misled into believing Paulson was investing in Abacus rather than shorting it. She wasn’t able to recall any instances in which Tourre falsely said that Paulson was investing in the equity of Abacus rather than shorting it.

The SEC introduced an e-mail from Schwartz, which was forwarded to Tourre, incorrectly referring to Paulson’s “equity perspective” on Abacus. Tourre, who responded to the e-mail and forwarded it internally, said he doesn’t remember reading it. And he testified that he doesn’t recall correcting Schwartz’s misimpression about Paulson’s “equity perspective.”

Massive Bets

Also called by the SEC was Paolo Pellegrini, a former top Paulson aide behind the hedge fund’s strategy of making massive short bets against the U.S. housing market, which won $15 billion for Paulson at a time when other investors were losing money. Pellegrini sparred with lead SEC lawyer Martens, at one point repudiating earlier testimony that he claimed was the product of SEC trickery and intimidation.

Tourre said during his own testimony that an e-mail containing draft deal terms that was forwarded to Schwartz “was not accurate” in showing that the equity of the Abacus deal was “pre-committed.” Tourre testified it wasn’t planned that the equity, or “first-loss,” tranche of the Abacus deal would be sold.

Tourre was compelled by SEC lawyer Martens to read aloud to the jury e-mails he’d sent his then-girlfriend in which he expressed his affection while musing over the structured investments he assembled and sold. In one e-mail, Tourre, who is French, quoted a friend’s nickname for him: “Fabulous Fab.” In the e-mail, Tourre referred to the investments he was constructing as “monstruousities.” In another e-mail, he joked about selling investments in Abacus to widows and orphans.

Own Thoughts

Coffey told jurors that Tourre’s “Fabulous Fab” e-mail was little more than “a book report,” closely tracking the language of the article he was forwarding rather than expressing his own thoughts. Remove those elements and “You’re left with a love note,” Coffey said.

“This is evidence of fraud? This is evidence of an evil state of mind? How pathetic,” he told jurors.

Martens, the SEC’s lead lawyer, said in his closing argument that despite the complicated nature of the financial products Tourre worked with, his fraud was a simple one.

“It was a $1 billion fraud to feed Wall Street greed,” Martens said.

As Martens addressed the jury in his summation, a slide was projected behind him, bearing the word “surreal” and its definition: “imaginary, unreal, dreamlike.” It echoed an e- mail in which Tourre referred to a meeting about the investment with ACA Management LLC and a representative of Paulson & Co. as surreal.

“His story is surreal,” Martens said.

Paulson’s Role

The SEC claimed Pellegrini, who wasn’t sued by the SEC, worked with Tourre to mislead ACA about Paulson’s role. The agency claimed that the presence of a third-party portfolio selection agent on the deal was necessary to sell it to investors. Tourre and Pellegrini tricked ACA into serving in that capacity, according to the agency.

“If he didn’t hide the truth, the deal wouldn’t have gone forward,” the SEC lawyer said of Tourre.

Coffey told jurors that Tourre is “a remarkable young man” and argued that mortgage bonds selected for Abacus investment constituted “a darn fine portfolio.”

“We’re here because Fabrice Tourre knows he did nothing wrong,” Coffey told jurors at the start of his closing argument.

Wasn’t Misled

Tourre claimed he never intended to mislead anyone in the Abacus deal. And Coffey attacked the government for failing to show that any claimed misrepresentations by Tourre made a difference to ACA or to investors in the deal. He argued that ACA knew Paulson planned to short Abacus and wasn’t misled. ACA would have applied the same standards to selecting a portfolio regardless of whether Paulson had a short position, he said.

“This was one of the strongest portfolios that ACA had ever constructed,” Coffey said, not one that was “designed to fail,” as the SEC repeatedly claimed. Coffey said the Abacus portfolio went “off the cliff” after July 2007 as a result of a change in rating company standards, along with every other CDO based on subprime home mortgages.

Coffey argued that ACA had worked on other deals with hedge funds that pursued a long-short strategy, going long on part of a deal’s capital structure while making short bets against other tranches. The evidence belied the testimony of former ACA chief executive Alan Roseman, who told jurors that his belief that Paulson was taking a long position in Abacus was “critical” to ACA’s participation.

Esoteric Matters

Throughout the trial, some of the jurors appeared distracted or drowsy as witnesses were questioned about esoteric financial matters including the workings of CDOs and credit default swaps.

They appeared more engaged when the testimony turned to Tourre’s late-night e-mails to his then-girlfriend and the difference between smiling and winking emoticons.

Martens sought to address the less-than-thrilling nature of much of the testimony during his closing argument.

“Admittedly,” the SEC lawyer told jurors, “the proof might not have been that exciting.”

The case is SEC v. Tourre, 10-cv-03229, U.S. District Court, Southern District of New York (Manhattan).