“The whole building is about to collapse anytime now…Only potential survivor, the fabulous Fab[rice Touree]…standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities.”
– E-mail from accused Goldman Sachs Vice President, Fabrice Touree to a friend on January 23, 2007
Editor’s Note: I first wrote about this case in my Client Advisory of April 22, 2010. Tourre’s finding of Liable is a timely opportunity to revisit this case. Jeff
Well, just when you thought it was impossible for anyone to be stupid enough in our email enlightened age to send incriminating emails, we see another career-ending email message plastered on the front page of the Wall Street Journal.
The story is now well known, Fabrice Touree, a Goldman Sachs VP was charged a few years ago by the SEC for defrauding investors by misstating and omitting key facts about some of their complex synthetic investment products that were tied to Subprime mortgages.
We watched him do the “Perp Walk,” listened to his denials, and then did what so many of us eDiscovery junkies do…. read his emails!
*collateralized debt obligations. CDOs were mentioned in an email that acknowledged the investment was ready to crater, despite Touree’s representations that the fund was sound.
The investment instruments, collateralized debt obligations (CDOs) by themselves are not inherently problematic. The CDO in this case, was known as ABACUS. But when Goldman then established a hedge fund essentially shorting the performance of ABACUS, (betting it would fail), and allegedly did not disclose this conflict of interest to investors, the SEC cried foul.
The mortgage market crashed and the securities upon which those mortgages were structured, in this case the ABACUS fund, tanked. The hedge fund that Goldman Sachs established to short the securities, of course, did very well netting GS&Co millions in fees. ABACUS investors lost $1 Billion. The SEC launched an investigation and charged GS&Co. and Fabrice Tourre with fraud. Now the Fabulous Fab has been found liable for violating federal securities law and intentionally misleading investors. Jurors also determined he had aided and abetted in an alleged fraud by Goldman. A large fine and a trading ban will almost certainly follow. The Fab may be through.
Emails discovered during the investigation are painting an intimate picture of the mindset of the alleged perpetrators. I would imagine the email from Tourre in which he describes himself as the ”fabulous Fab” is not sitting well with the investors that lost millions of dollars in the deal. Those who buy-into Fab’s mindset might be wise to consider the following…
“All too often arrogance accompanies strength, and we must never assume that justice is on the side of the strong. The use of power must always be accompanied by moral choice.
- Email discovery is alive and well. And technology is making the collection and analysis of email records very affordable, even for small cases. Remember to target emails when investigating or litigating. 2013 Update: “Deleted” Text messages from mobile devices are rapidly replacing emails as the best source of “hot docs” during investigation and litigation. Go after those mobile devices.
- Purge! Although some organizations are regulated with respect to retaining old email records, many are not. Retaining old emails is dangerous and exposes an organization to serious risk and unnecessary liability. Your clients should have an email retention policy and an automated system for removing old email from systems (consistent, of course, with any required data compliance laws that relate to their industry). If old emails are on your systems, they are discoverable by an aggressive legal opponent.
- Technology is the great equalizer. Consider advising your clients, particularly large firms with an ongoing “reasonable expectation of litigation”, to research email management technology solutions that can index, organize, and remove emails in an automated fashion. A number of fine products are on the market, and this technology can help companies be in a constant state of readiness for the inevitable email discovery requests. An added benefit to these tools is a legally defensible policy for purging old, and potentially damaging, emails regularly.
- Meet and Confer. Federal Rules are demanding that attorneys meet to settle the often tangled issues related to discovery of Electronically Stored Information (ESI) early. In addition, the work underway as a part of the Seventh Circuit Pilot Program focuses a great deal on placing the burden of settling the ESI issues upfront. Use these meetings to agree on the methods and approaches for handling email discovery. Get expert advice and professional E-Discovery participation at these meetings if needed.
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Contact Jeffrey Hartman
- “SEC v. Goldman: The News Release & the Complaing” The Wall Street Journal. Wsj.com edition. April 16, 2010.
- “Securities and Exchange Commission v. Goldman Sachs & Co. and Fabrice Tourre. Complaint [Securities Fraud] Washington DC. April 16, 2010
- The Wall Street Journal. “Fab” Trader Liable in Fraud. By Justine Baer, Chad Bray, and Jean Eaglesham. Page 1, Friday, August 2, 2013