A judge in New York has ordered Fabrice Tourre, a former Goldman Sachs (GS) executive, to pay $825,000 in civil penalties for his part in a mortgage deal that prosecutors say was designed to fail.
Tourre was the only person named by the Securities and Exchange Commission when it accused Goldman in 2010 of defrauding investors in the 2007 sale of securities tied to subprime mortgages.
The SEC claimed that Tourre and Goldman deliberately misled investors by selling them an investment product that was likely to fall in value. The underlying mortgages that made up the so-called Abacus security were selected in consultation with hedge fund Paulson & Co., which then bet against them, according to the SEC.
Goldman agreed to pay $550 million to settle the charges in 2010, though it neither admitted nor denied the allegations.
The judge ordered Tourre on Wednesday to pay $650,000 in civil penalties. He is also required to disgorge $175,463, which is roughly equivalent to the bonus he received for arranging the sale, plus interest.
Goldman has been barred from paying the penalties for Tourre.
The order is a victory for the SEC, which has been criticized for failing to hold banks liable for reckless behavior in the run-up to the 2008 financial crisis.
The SEC is "pleased" that the judge ordered Tourre to pay "significant penalties" on top of what the commission had recommended, said enforcement director Andrew Ceresney.
"The ruling reflects the SEC's intent of pursuing meaningful sanctions to punish individuals responsible for misconduct and deter others from violating the federal securities laws," said Ceresney.
But punishing a "low level Goldman vice president" cannot make up for the SEC's "indefensible record of failure" in prosecuting the senior bankers responsible for the financial crisis and ensuing recession, according to Better Markets, a nonprofit group that has been highly critical of Wall Street and its regulators.
"Systemic recklessness, fraud and criminality on Wall Street were at the core of the crash and crisis, which didn't happen because of one junior employee at one bank," said Better Markets president Dennis Kelleher. "History will judge prosecutors and regulators harshly for abdicating their duty to enforce the law without fear or favor on Wall Street as they do on Main Street."
For many, Tourre has become a symbol of Wall Street malfeasance.
In a series of emails from 2007, Tourre, then 28 years old, described himself as the "fabulous fab" -- a nickname he said other Goldman employees gave him. He also said he was "the only potential survivor" of a collapsing market for complex mortgage-backed securities.
But Tourre has argued that the investors who bought into Abacus were sophisticated enough to understand the risks involved.
Tourre said in a statement Wednesday that he is considering "potential next steps in the legal process," suggesting he may appeal the judge's decision. However, the window to file an appeal has not opened yet, according to a person familiar with the situation.
In the meantime, Tourre said he is focused on earning his doctorate in economics at the University of Chicago "and pursuing an academic career."
Investing in IPOs is risky enough when a company dots all of its i's and crosses its t's.
But ever since the Jumpstart Our Business Startups, or JOBS Act, was signed into law in April, companies with less than $1 billion of annual revenue can file for confidential IPOs.
The law was supposed to make it quicker and easier for smaller so-called emerging growth firms to go public since confidential IPOs only MOREMaureen Farrell - Aug 9, 2012 12:05 PM ET
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