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.