Goldman Sachs agreed to pay a record $550 million to resolve the case three months later, setting the stage for claims against JPMorgan Chase & Co., Citigroup Inc., Mizuho Financial Group Inc. and Wells Fargo & Co. over investment products tied to mortgages.
As the SEC lost fights against people involved in Citigroup and JPMorgan deals, the contest against Tourre became a referendum on the agency’s settlement with Goldman Sachs and its work on financial-crisis cases.
“The SEC needed at least one scalp from the financial crisis, or they were going to face a lot of heat from Congress,” said Adam Pritchard, a University of Michigan law professor who previously worked as a lawyer for the regulator.
The trial required the SEC to teach jurors how to parse disclosures on synthetic collateralized debt obligations. As jargon-filled testimony rolled on, pundits including Joe Nocera, an op-ed columnist for the New York Times, predicted the government’s defeat. Tourre’s lawyers, funded by Goldman Sachs, didn’t call anyone to the stand, relying instead on SEC witnesses including Tourre to mount their defense.
Eating Crow
The jury found him liable Aug. 1 on six of seven of the SEC’s claims.
“I need to eat some crow,” Nocera said Aug. 2 on radio station WNYC. “After the government’s rocky start in the trial, I said ‘Oh, this thing’s a slam dunk for Fabrice, he’s going to be off the hook.’ And I was dead wrong.”
Andrew Ceresney, co-chief of the SEC’s enforcement division, said the agency was “gratified” by the verdict and that it will bring others to trial whenever needed.
“The verdict against Tourre validates the Goldman settlement,” Pritchard said. “It was questioned at the time, and now the jury has said that there was something there.”
The SEC’s victory isn’t enough to overshadow the agency’s other shortcomings, said Dennis Kelleher, president of nonprofit Better Markets.