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The silly trial of Fabrice Tourre

By Felix Salmon

There's a huge amount of legal firepower on display in lower Manhattan right now, all centered on a University of Chicago grad student named Fabrice Tourre.

Arrayed against him, in this civil case, is the might of the SEC, which has tapped the head of its trial unit, Matthew Martens, to take a lead role. Tourre's own lawyers, who have been representing him for the past three years, include none other than Sean Coffey.

It's fair to assume that many, many millions of dollars are being spent on this trial. But what's much less clear is why. Tourre was a junior salesman, buried deep inside the Goldman Sachs CDO machine, and, almost exactly three years ago, Goldman Sachs paid $550 million to settle the charges against it. Why is the SEC, in 2013, still putting so much effort into chasing a single individual from Goldman Sachs? Certainly Tourre doesn't have the wherewithal to be able to make any significant difference to the amount of money the SEC will end up collecting in this case - which means that this case is personal: the SEC wants to ban Tourre from the securities industry, and to possibly drive him into personal bankruptcy, as well, if they can extract a large enough fine.

The pathos here is unavoidable: this single case, brought against a minor spear-carrier in the great CDO saga, has become the SEC's best hope, in the words of the NYT, for "a defining victory in its uneven campaign to punish those at the center of the crisis". Surely the SEC would have been better off quietly settling: even a victory will seem pretty thin gruel, given that the people who really made out like bandits are being celebrated with keynote luncheon appearances at the Pierre Hotel even as the trial drags on downtown.

Meanwhile, of course, the downside is substantial. If the SEC loses this case - which is entirely possible, given how incomprehensible the charges are - it looks even more Keystone Cops. The burden of proof in civil cases is lower than it is in criminal cases: the SEC just needs to convince the jurors that a preponderance of the evidence is on its side. But while I'm pretty sure that what Goldman did was immoral, I'm much less convinced that it will be easy to convince a stultified jury that there was something illegal going on.

All in all, the upside for Goldman, here, is much bigger than the upside for the SEC. Goldman is paying Tourre's legal fees - they're a rounding error, in the context of the cost of the bigger settlement, and doing so also sends a clear internal signal that Goldman will have its employees' backs, should they get into trouble as a result of the work they do for the firm. A victory for Tourre would be a victory for Goldman - which, remember, never admitted the allegations the SEC made against it.

The rather dispiriting truth of the matter is that the SEC has spent four years and millions of dollars trying to find someone, anyone, to prosecute in the wake of the financial crisis - and has ended up bringing to trial a guy whose biggest mistake was to display a little too much braggadocio in private emails to his girlfriend. If I were on the jury, I'd be hesitant to find Tourre not guilty, if only because of the synecdoche here: one look at the legal teams is enough to demonstrate that the defendant in this trial is not really Tourre, so much as it is a man standing in for Goldman Sachs as a whole. But Goldman has already settled. So the best outcome, I think, would be for the jury to find Tourre guilty, to fine him $1, and to let him go back to his studies and to the rest of his life. But in order to do that, the jury would probably have to have a reasonably sophisticated understanding of what exactly is going on. Which, quite clearly, they don't.

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