Hedge-fund titan John Paulson (left) played possum with investors back in 2007 so he could lure them into complex deals engineered to implode, jurors for the trial of Fabrice Tourre were told yesterday.
“You consistently used the same script … and that was the script that you were playing the role of an equity investor,” Matthew Martens, the lead lawyer for the Securities and Exchange Commission, told one of its key witnesses, Paolo Pellegrini, a former executive with Paulson’s firm.
During questioning that grew more and more testy, Martens peppered Pellegrini with his own previous comments to SEC investigators, trying to show the jury that Paulson & Co. misled investors as to the firm’s intent.
Pellegrini — who helped Paulson craft a massive bet that the housing market would fail back in 2006 — responded that it was the SEC lawyer who was doing the misleading.
“You’re tricking me into saying so many things,” he complained.
“I thought you were trying to test the words I used,” Pellegrini added, referring to his testimony with the SEC on a separate but related matter.
In part, the SEC has been trying to present the case that Paulson’s fund, at times, hid its plans to bet against mortgage-market investors.
Unable to get an audience with those investors, Paulson’s fund needed to convince potential participants in the deal that it was a potential long investor — that is, not betting that the complex Abacus deal would collapse.
“[Paulson] did not want me to seek publicity [for the hedge fund’s short position],” Pellegrini testified. “He did not want me to be a gadfly.”
Referring to himself as “scared” and “intimidated,” Pellegrini later contradicted his own testimony provided in 2008 related to a separate SEC investigation into the Abacus deal.
“I have exhibited frustration many times … for this, I apologize,” Pellegrini joked later in cross-examination from Tourre’s co-lead lawyer Pamela Chepiga.
The SEC has charged ex-Goldman Sachs banker Tourre with misleading investors over the $1 billion sale of synthetic collateralized debt obligations, in this case known as Abacus.
Goldman Sachs was also charged, but settled its case for $550 million without admitting or denying guilt.
The SEC hoped to use Pellegrini’s testimony to show that those close to the deal were less than truthful.
The testimony has been the highlight of the federal civil trial, which is expected to last three weeks.
Later in the day, Goldman employee Jonathan Egol testified for about an hour. It was a stark contrast to Pellegrini with the judge referring to his testimony as “forthcoming.”