Wall Street is ruing the day it ever heard of the “Fabulous Fab.”
The former Goldman Sachs trader — whose moniker emerged in embarrassing e-mail exchanges with his then-girlfriend in 2010 — is already proving to be an unwelcome blast from the past.
Fabrice Tourre’s trial, which starts today in Manhattan federal court, is dredging up the Wall Street excesses and lax oversight that blew up the housing market and nearly tanked the economy in 2008. His is the first such case since two Bear Stearns hedge fund managers, Matthew Tannin and Ralph Cioffi, were acquitted in 2009.
The Securities and Exchange Commission has accused the 34-year-old Frenchman, whose $2 million paychecks allowed him to throw lavish soirées at his $3,000-a-month pad, of knowingly peddling investments that were designed to fail.
“The whole building is about to collapse anytime now,” Tourre wrote in one infamous e-mail, referring to the impending collapse of the financial markets.
The “only potential survivor, the fabulous Fab … 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] !!!”
The trial comes at a particularly bad time for the nation’s biggest banks, with regulators and lawmakers making a fresh push to punish Wall Street for its past recklessness.
Bank regulators recently proposed stricter rules that would force firms to double the amount of capital they set aside to cover losses.
At the same time, Wall Street’s least favorite gadfly, Sen. Elizabeth Warren (D-Mass.), is trying to bring back rules — à la the 20th-century Glass-Steagall Act — that would break up the big banks.
Meanwhile, most surveys show that the vast majority of Americans support tougher bank regulations.
The SEC alleges that Tourre and Goldman sold investors a complex mortgage security, known as Abacus, without telling them that hedge fund billionaire John Paulson helped construct Abacus just so he could bet against it.
The case comes more than three years after Goldman settled similar charges with the SEC, shelling out a whopping $550 million fine over allegations that it misled clients about the complex mortgage deal.
Since then the investment bank — whose gold-plated reputation took a major beating — has worked hard to shed its image as “a great vampire squid wrapped around the face of humanity.”
Goldman has tried to project a kindler, gentler image in new ads highlighting the bank’s role in financing small businesses, while CEO Lloyd Blankfein has taken up the fight for gay rights as his cause célèbre.
In some ways, the case will be a battle for redemption between Goldman, which is footing Tourre’s legal bills, and the SEC, which has yet to bag a key figure caught up in the financial crisis.
“It’s similar to TV crime shows. If you can’t get Mr. Big you go after his underlings, but that serves its own purpose,” said Anthony Sabino, a white-collar crime lawyer and St. John’s University law professor. “It deters middlemen who might be accomplices in the future and/or it encourages them to testify against their bosses.”
Witnesses may include everyone from hedge maestro Paulson to his former right-hand man, Paolo Pellegrini, who helped come up with the idea to bet against the housing market.
Also likely to take the stand is Tourre’s Goldman bosses and colleagues as well as the “Fabulous Fab” himself.
“Fabrice Tourre has done nothing wrong,” said his lawyers, Pamela Chepiga and Sean Coffey. “He is confident that when all the evidence is considered, the jury will soundly reject the SEC’s charges.”