After Filling in a Blank, Trader Finishes Testimony

In February 2007, Fabrice Tourre sent an e-mail to his boss at Goldman Sachs, calling a meeting he was attending “surreal.”

He was at the meeting with ACA Management and the hedge fund Paulson & Company to see if ACA was interested in managing a complicated mortgage trade that Goldman hoped to offer.

The Securities and Exchange Commission, which has accused Mr. Tourre of conspiring to defraud investors who bought into the trade, has argued to jurors at the civil trial that Mr. Tourre uttered “surreal” because he was hiding from ACA the fact that Paulson & Company was planning to bet against the deal, even though the hedge fund was helping to construct it.

In testimony at and before his trial, Mr. Tourre was unable to remember the logic behind his word choice, a blind spot that the S.E.C. hoped would work in its favor.

Yet on Friday, Mr. Tourre suddenly remembered. When presented with a separate e-mail that he had not previously seen, according to his lawyer, Mr. Tourre recalled that he learned at the meeting that John Paulson, the billionaire who runs Paulson & Company, was not only betting against mortgage deals, but was also betting some Wall Street banks would fail.

“That hedge fund was concerned about its exposure to the banks,” Mr. Tourre said, explaining to the jury that usually it was banks that were concerned about the health of hedge funds.

Mr. Tourre’s ability to recall why he sent that e-mail was among the highlights of three days of his testimony, which concluded Friday. Mr. Tourre’s case, which is heading into its third week, is one of the most significant trials to emerge from the financial crisis and one that the government hopes demonstrates the pervasive hubris on Wall Street responsible for the mortgage mess.

The S.E.C. is expected to rest its case on Monday, turning the spotlight to the defense team, which will call at least one of Mr. Tourre’s former colleagues to testify. In an unexpected move, however, the lawyers have decided not to call Mr. Paulson, according to people briefed on the matter.

Tourre Email

The stakes are high for both sides. For the S.E.C., which has been dogged by its failure to thwart the crisis and hold executives who played a role in it accountable, its reputation is on the line. If Mr. Tourre walks away, it is a victory for both him and his former employer, Goldman Sachs.

While Goldman paid $550 million to settle the matter in 2010, the bank has long resented the case against Mr. Tourre, the only person facing a trial involving the security that soured. A court decision in favor of Mr. Tourre would give the firm a moral victory. If found liable, Mr. Tourre faces monetary penalties and a possible suspension from Wall Street.

The case will hinge in part on the representations Mr. Tourre made to ACA, a firm that helps structure mortgage deals, and other investors over Paulson & Company’s involvement in the trade. The S.E.C. has contended that Mr. Tourre conspired to keep secret the hedge fund’s involvement in the transaction, and the jury has seen evidence that Mr. Tourre sent e-mails to ACA that implied Paulson was hoping the trade would rise in value, when in fact it was betting it would fail.

At the same time, jurors have heard that Mr. Tourre sent other documents to ACA, ones that also went to investors, that could have cleared up any confusion.

Pamela Chepiga, the defense’s lead counsel, questioned whether Mr. Tourre, who was a 28-year-old midlevel employee at the time, was under the obligation to disclose Mr. Paulson’s role.

“Did anyone at Goldman suggest to you that Paulson or his interest had to be disclosed?” she said.

“No, not that I remember,” Mr. Tourre said.

Mr. Tourre explained that he learned of the S.E.C.’s 2010 charges when reading a headline off his Bloomberg terminal while standing on Goldman’s London trading floor. He was immediately put on paid leave by Goldman, and the firm paid him roughly $750,000 during the year he didn’t work.

At another point in his testimony, Mr. Tourre explained why he declined to settle with the S.E.C. in hopes of clearing his name.

“I was hoping I could make the S.E.C. understand this case,” he told jurors.

After Mr. Tourre left the stand, the jury watched videotaped testimony from two players in the trade, which was known as Abacus 2007-AC1. One recording that featured Dean Atkins â€" a former employee of ABN Amro, which helped execute the trade â€" could prove helpful to the S.E.C.

Mr. Atkins believed that ACA was the company constructing the mortgage deal, not Paulson. It would have been important to know that Paulson was helping to construct the deal, he said, because that role amounted to a “direct conflict of interest.”

“Their interests wouldn’t be aligned with ours,” he said.

Ms. Chepiga chipped away somewhat at that argument, citing a 2009 deposition in which Mr. Atkins said the deal would have proceeded “whether it’s selected by ACA or anybody else.”

As the hourlong recording dived into the minutiae of mortgage trades, it put some jurors to sleep. Their boredom was not lost on Judge Katherine B. Forrest, who playfully remarked “let’s not watch it twice,” eliciting laughter from the jury.

The judge offered a consolation prize to the jury on Friday: goodies from Dunkin’ Donuts.

In reply, the jurors sent her a thank-you note that she read aloud in court: “You are awesome,” the jurors wrote, adding a smiley face.