Tourre Lawyers Focus on Reliability of Federal Witness

More than six years ago, Gail Kreitman contacted a former colleague to pitch a new debt investment that her employer at the time, Goldman Sachs, was putting together.

Ms. Kreitman’s efforts â€" and her sometimes-conflicting memories of them â€" have since become a big focus at the civil trial of Fabrice P. Tourre, a former Goldman trader whom the government has accused of defrauding investors with that mortgage deal.

On Monday, Ms. Kreitman concluded two days of testimony during the trial, which has become one of the most prominent cases linked to the financial crisis of 2008. The Securities and Exchange Commission is accusing Mr. Tourre of misleading investors about the debt security, which ultimately failed. He has denied any wrongdoing.

For the S.E.C., Ms. Kreitman’s testimony was meant to buttress the argument that Mr. Tourre was not forthcoming about the true origins of the investment: the hedge fund Paulson & Company, which had assembled a complex security tied to home loans and then wagered that it would fail. The investment firm eventually made $1 billion from its bet, while the other investors in the deal lost money.

But the defense aimed to portray Ms. Kreitman as a problematic witness who on the stand was able to recall huge chunks of details about the mortgage deal that she could not remember when first questioned by the S.E.C. under oath four years ago. Some of her testimony at Mr. Tourre’s trial seemed to directly contradict what she said during the earlier testimony.

A lawyer for the S.E.C., Bridget Fitzpatrick, introduced a flurry of e-mails in court on Friday and on Monday detailing months of correspondence between Ms. Kreitman and her colleagues at Goldman and contacts at ACA Management, a financial firm that ultimately helped assemble the mortgage deal. In particular, she corresponded often with Laura Schwartz, a senior executive at ACA, with whom she had worked at Merrill Lynch.

Ms. Kreitman, a former managing director at Goldman, told ACA employees that Paulson & Company was backing the security, when in fact the hedge fund planned on betting that the investment would fail.

When pressed, Ms. Kreitman said that she must have received that information from somewhere â€" she professed a reliance on experts like Mr. Tourre’s trading desk for technical details of transactions â€" and insisted that she would not have lied.

“I would never tell my client anything I did not believe to be true,” she said in court. She later added, “The trading desk really ran point, which is unusual for me.”

But in one of the stranger portions of Monday’s testimony, Mr. Tourre’s team homed in on inconsistencies between what Ms. Kreitman told the S.E.C. in 2009 and what she said in court during the trial. During that earlier testimony, she contended that she had only recently learned of Paulson & Company and its big wager against the housing market through news articles that year.

She also testified that she did not know that Paulson & Company was betting against the mortgage deal that she was helping to sell to ACA.

A number of jurors appeared to perk up during that particular line of questioning, staring intently at Sean Coffey, the lawyer for Mr. Tourre leading the cross-examination.

Ms. Kreitman insisted that she had studied huge numbers of documents since that initial testimony to the S.E.C. in 2009, in order to refresh her memory. “I pretty much lived with those documents,” she said. (She also contended that in the 2009 testimony, she had confused Paulson & Company with its president, John A. Paulson.)

Inside ACA, senior executives were under the impression that Paulson & Company was “long” on the investment, betting it would rise in value.

Alan S. Roseman, the former chief executive of ACA, also testified Monday. He was one of the people at ACA who signed off on the transaction, and jurors were shown internal ACA documents that implied that the big hedge fund had a long interest. In one ACA document, Paulson & Company is referred to as “the hedge fund equity investor,” a term that would indicate the fund had a long interest.

Mr. Roseman, who is married to a senior Goldman Sachs lawyer, said the transaction “would have been stopped in its place” had ACA known that Paulson & Company was only betting against the transaction. That information, he said, was “critical.”

Mr. Roseman told jurors that he found out in April 2010, when the S.E.C. filed its case against Goldman and Mr. Tourre, that Paulson & Company had actually bet against the deal.

“I was pretty surprised,” he said.

Brandon D. O’Neil, a lawyer for Mr. Tourre, cross-examined Mr. Roseman for only a few minutes on Monday. He asked Mr. Roseman if he had talked to anyone at Goldman about the transaction. Mr. Roseman said he had not, relying instead largely on guidance from Ms. Schwartz.

Mr. Roseman is expected to be followed on the stand by Ms. Schwartz of ACA, who is also one of the primary witnesses for the S.E.C.