A French executive at Goldman Sachs accused of misleading investors about risky assets ahead of the US housing market meltdown on Monday denied fraud charges by securities regulators.
Lawyers for Fabrice Tourre filed a response to the charges by the US Securities and Exchange Commission days after Goldman agreed to pay a record US$550 million to settle government fraud charges.
Tourre, whose case was not part of the settlement, said in the document that he “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.”
The civil charges against Tourre stem from the 2007 sale of a complex investment product called Abacus, which was backed by mortgage securities before the collapse of the subprime market.
He was accused of failing to warn investors that a hedge fund headed by investor John Paulson was involved in the selection of the composition of the Abacus and that Paulson was betting on the fall of the US housing market.
Goldman Sachs in its settlement acknowleged that its investment materials contained incomplete data on Abacus. It agreed to pay US$300 million to the US Treasury and US$250 million to investors in the settlement.
Among clients of Goldman’s controversial product were Germany’s IKB Deutsche Industriebank and Britain’s the Royal Bank of Scotland.
Goldman claimed that it lost US$90 million from its own investment in the security.
The type of mortgage-backed securities sold by Goldman in the deal were a key contributor to the financial crisis that peaked in 2008 because many contained risky mortgages.
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