One of the few Wall Street insiders to have been prosecuted for fraud related to the sale of sub-prime mortgage securities has been Fabrice Tourre, also known as “Fabulous Fab.” In 2007, just ahead of the economic collapse caused in great part by the bursting of the housing bubble, Tourre made $1.7 million largely from selling sub-prime-mortgage securities to investors—when he clearly knew that those securities were extremely over-priced and risky, if not almost certain to fail.
Worse, as an employee of Goldman-Sachs, Tourre communicated with John Paulson, who became one of Wall Street’s most prominent hedge-fund managers by promoting investments in credit-default swaps that became increasingly profitable as the housing market tanked. In effect, Tourre and Goldman Sachs identified for Paulson, then a client, which mortgage-backed securities were the most likely to fail, even as they were promoting those securities to other clients as solid investments.
Before the case could be taken to court, Goldman Sachs settled its part of it for $550 million, while asserting that the settlement agreement was not an admission of any criminal wrongdoing. Tourre, however, was tried and convicted on six counts of trading fraud.
Over this past week, “Fabulous Fab” has been in the news for two reasons. First, his appeal of his convictions to the U.S. District Court in Manhattan was unsuccessful. Judge Katherine Forrest found no basis either for summarily throwing out the convictions or for ordering a new trial. Second, he is apparently pursuing a doctorate in economics at the University of Chicago and is teaching a course there on “Elements of Economic Analysis.” Continue reading