Fabrice Tourre’s defense: a Gallic shrug

Joint post by Richard Smith and Tom Adams, a securities lawyer

The fabulous Fab has entered his solo response to the SEC’s complaint. It provides an interesting glimpse into what are certainly complex legal strategies by Tourre, Goldman and the SEC.  The list of his stated defenses are at the bottom.

First, the response may provide some insight on the current relationship between between Tourre and Goldman.  Tourre is still employed by, but on leave from, Goldman.  On the one hand, it seems like Goldman has, in the words of Senator Coburn, hung Tourre out to dry.  On the other hand, much of Tourre’s defense reads like what Goldman would have argued themselves.  Since Goldman concluded that it made more sense to settle than to fight these claims, this would appear to be a curious decision by Tourre.

However, upon closer inspection, perhaps Tourre has not really been hung out to dry and his response is probably being written on Goldman’s behalf, as well.  After all, Goldman is paying for Tourre’s lawyers and Tourre’s firm is long time Goldman lawyers Allen & Overy.

After reciting a few boilerplate responses, such as that the SEC complaint fails to plead fraud with particularity and is confusing, vague and ambiguous, Tourre’s response asserts that Tourre was just a small cog in a much bigger CDO selling machine.  Whatever statements were made in documents to investors were prepared and reviewed by many other people in the Goldman machine upon which Tourre reasonably relied.  Therefore, he can’t be held liable for such statements, since they were made by the firm, not him individually.

Tourre almost appears to be blaming Goldman with this response.  Part of the Goldman settlement was an agreement to institute greater oversight and training for documents and statements made to investors.  Together with Goldman’s admission of a “mistake” in its offering documents, this would seem to imply that Goldman’s process was ineffective.  By arguing that many people reviewed the documents and were aware of the relevant facts, Tourre’s attorneys seem to be rebutting the notion that the mistaken statements were not properly vetted.  If Tourre was truly flying solo in his defense, this might suggest that Tourre believes that no individual within a firm can be liable for the statements made in, or around, offering documents. If he wins on this point, that would surely be bad news for investors, since there would be no way ever to trust anything bankers said to them.

Tourre also argues that, although he was aware that Paulson was selecting much of the portfolio and then betting against it, he did not make any misstatements or omissions by failing to disclose this information to the investors.  In addition, his responses go further and state that neither he nor Goldman had any duty to disclose this information.  Goldman may, in fact, continue to believe that they had no duty to disclose the information.  However, it seems they didn’t feel it strongly enough to fight in court the way Tourre will be doing.  Tourre may be distinguishing his role, however, to argue that he had no individual duty to make these disclosure (relying again on the Goldman machinery).

Tourre’s response also has a humorous notion (as humorous as legal jokes can be…):  in the Seventh Defense, Tourre argues that he can’t be liable for any omissions that he did not make.  Isn’t that the point of an omission?  More seriously, Tourre’s argument is that the information about Paulson’s role and investment strategy was not material to investors.  While the debate over materiality of this information has been argued throughout the media and blogosphere, Goldman conceded the relevance of the information by admitted they were “mistaken” for not including it and then paying large amounts of money to the investors who relied on the mistake.  This would seem to present an uphill battle for Tourre.  Yet at the same time, it gives Goldman, if they are behind the scenes in his defense, an opportunity to argue the case again on both his and his firm’s behalf.

Most of the coverage of Tourre discusses how he is going it alone and “hung out to dry” by Goldman.  Yet, Tourre’s response to the SEC complaint does not have any significant differences between it and the arguments that Goldman made before its settlement.  In addition, it is possible that Goldman views Tourre’s defense as beneficial to its own arguments and strategy.  Perhaps Goldman’s legal tacticians developed a paired strategy of settling for the company, without claiming any responsibility for the devious actions of Tourre, while having Tourre claim he actually did nothing and just relied on the Goldman process and machinery.  By separating the positions of itself and Tourre, Goldman is able create the illusion that the two parties are acting separately but in reality the two responses to the SEC are designed to mitigate the overall damage of the SEC complaint to Goldman.  The strategy may also be an interesting way of fighting for Goldman’s ultimate innocence without suffering the consequences as a firm.  This would raise the stakes of the battle for both the SEC, which would need a tough settlement to support their settlement with Goldman, and Tourre, who could end up with serious penalties if he loses.  Meanwhile, if Tourre does lose, Goldman can argue that he was just an individual or a rogue trader and they’ve cleaned up their act so the outcome no longer affects them.  Of course, the plan could backfire on Goldman.  If the SEC is able to mount a strong argument, perhaps by uncovering more incriminating emails or documents, and decides to play hardball with Tourre to set an example to other individual bankers, Goldman’s reputation could end up more tarnished.

First Defense

The Complaint fails to state a claim upon which relief can be granted.

Second Defense

The complaint fails to plead fraud with particularity.

Third Defense

The Complaint fails to allege the existence of any material misstatement or omission.

Fourth Defense

Neither Mr. Tourre no Goldman Sachs had a duty to disclose any allegedly omitted information.

Fifth Defense

The Complaint fails to allege that Mr. Tourre acted with the requisite scienter or mental state that is necessary under the circumstances for him to be held liable.

Sixth Defense

The purported claims against Mr. Tourre and the allegations upon which they are based are improperly vague, ambiguous and confusing and omit  critical facts.

Seventh Defense

Mr. Tourre cannot be held liable for any misrepresentations or omissions that he did not make.

Eighth Defense

The purported claims against Mr. Tourre are based solely on alleged actions and omissions concerning information known to many differing Goldman Sachs employees working in various aspects of its business, including Legal, Compliance, sales and trading.  Mr. Tourre, a French citizen and engineer by training, reasonably relied on Goldman Sachs’ institutional process to ensure adequate legal review and disclosure of material information, and cannot be held liable for any alleged failings of that process.


Print Friendly, PDF & Email


  1. Just a thought

    Maybe the seventh defense should have been put through the same Goldman internal review process as the offering documents…

    My guess is the more appropriate word would be ‘commit’ as opposed to ‘make’ thus suggesting misrepresentations and omissions of those upon whom Mr. Tourre reasonably relied are not his misrepresentations and omissions. Consistent with your comments in the fourth paragraph.

  2. Siggy

    Mr. Tourre may come to find that he needs a different lawyer. As outlined here, his defense tends to reinforce the settlement achieved by GS.

    It would be very informative to understand what the arrangement betwen GS and Mr. Tourre’s attorneys is. One would have to assume that as Mr. Tourre’s attorneys are being paid by GS that they are, in fact agents acting in behalf of GS. In that the best interests of Gs lie in the exculpation of Mr. Tourre. Where complete exculpation may not be achieved, the best outcome for GS would be for a deminimus finding against Mr. Tourre. That is the probable objective of Mr. Tourre’s defense.

    When settled, it would be very informative to know just what Mr. Tourre’s arrangements with GS will be going forward. Or, is there a nice life annuity in Mr. Tourre’s future?

  3. Blurtman

    Conrad Black is getting out on bail. The US Supreme Court says Skilling got a bad deal. Obama is on the telly applauding Friend of Angelo Chris Dodd.

    This is very bad Soviet era cronyism and propaganda. Is this what always happens during the decline of an empire?

  4. Hugh

    I can only see this as whitewashing. Tourre’s attorneys work for GS. They can’t want the discovery if Tourre opts out and chooses to go to trial.

  5. Paul

    My guess is that Tourre was not offered as sweet a deal as Goldman, and so he finds himself in trial. This setup is pretty nice though. Defense #8 seems to be the obvious get out of jail free card.

    Step 1: Goldman makes a settlement, not formally admitting wrongdoing while still admitting ‘mistakes’.
    Step 2: Tourre’s defense is that Goldman made ‘mistakes’ and it is not really his fault.
    Step 3: Representatives from Goldman testify that institutional ‘mistakes’ were largely responsible for the incident and that council from Goldman erroneously signed off on the deal and marketing materials. It would seem unlikely that Tourre dealt directly with security selection, the investors, legal/compliance review and the creation of marketing materials (most firms have separate teams for each of these roles); therefor a lot of the blame related to these points can be deflected from him as an individual.
    Step 4: Tourre is found not guilty, usually this testimony would indict Goldman, but they have already settled the charges with no admission of wrongdoing.

    What I don’t understand is why this new less kind, less gentle SEC still allows settlements without admission of wrongdoing. The revenue they get from the settlements doesn’t really change the federal budget, nor does it critically threaten the businesses who are in the wrong. A tougher SEC would set a mandate that all fraud cases go to court unless a formal admission of wrongdoing is included in the settlement.

  6. slowlearner

    You really ought not to read too much into an Answer. It is perhaps the least interesting and least revealing of any legal submission in U.S. courts. The main purpose of the Answer is to deny any fact that can be plausibly denied and preserving any affirmative defense that one could conceivably make during the litigation. Answers are boring formalities that rarely give much indication of the type of defense that a party will make. And the affirmative defenses are usually little more than boilerplate.

Comments are closed.