Tourre Seeks Leniency in S.E.C. Case

Fabrice Tourre’s Wall Street career is over. And his next job, probably a junior role in academia, will pay a fraction of what he earned as a rising star at Goldman Sachs.

So as Mr. Tourre faces stiff financial penalties for his role in creating a soured mortgage deal, the 35-year-old Frenchman is fighting back.

In a court filing on Tuesday, Mr. Tourre’s lawyers attacked the Securities and Exchange Commission’s pursuit of more than $1 million in penalties, calling it “unwarranted and unjust” and “unreasonably severe.” Mr. Tourre’s lawyers are proposing something far smaller: a maximum penalty of $65,000.

Mr. Tourre’s bid for leniency comes about six months after a federal jury found him liable for defrauding investors in the mortgage deal, a verdict that handed the S.E.C. its first major legal victory in a case arising from the financial crisis. Until the case made Mr. Tourre a symbol of the crisis, such courtroom triumphs remained elusive for the agency.

The filing on Tuesday opened a window into Mr. Tourre’s life since the trial, saying he had resumed his routine as an economics doctoral student and teaching assistant at the University of Chicago. “His career in finance over,” his lawyers wrote, “Mr. Tourre has striven to rebuild a life and career,” noting that he also volunteered in Rwanda.

The legal filing raised the stakes in what was already a contentious back-and-forth over the punishment.

In December, when the S.E.C. delivered the opening salvo, the agency claimed that Mr. Tourre “has exhibited no contrition or appreciation of his misconduct.” And weeks later, when the agency sought to block Mr. Tourre from lending nearly $500,000 to a family member for an apartment purchase, fearing he was squirreling away money outside the government’s reach, Mr. Tourre’s lawyers fired back at the S.E.C.’s “cynical misinterpretation.”

For all the squabbling, the final say on the payouts rests with the judge overseeing the case, Katherine B. Forrest of Federal District Court in Manhattan. It is unclear whether Judge Forrest, who recently declined to order a new trial for Mr. Tourre, will hold a hearing on the punishment or simply issue a ruling.

A decision is expected in the coming weeks. If Mr. Tourre objects to the judge’s ruling, he can appeal both her punishment and the jury’s verdict.

The S.E.C.’s case centered on a mortgage investment known as Abacus 2007-AC1, a deal that Goldman Sachs created with the help of a hedge fund, Paulson & Company. Mr. Tourre and Goldman, the S.E.C. argued, failed to disclose to investors that the hedge fund was betting the deal would fail. When the deal ultimately imploded, Paulson reaped about $1 billion in profit.

The case hinged on the S.E.C.’s grim portrayal of Wall Street greed. In a nod to an anti-Wall Street sentiment blanketing the Main Street investing public, the S.E.C.’s lead prosecutor, Matthew T. Martens, denounced Mr. Tourre during the trial as living in a “Goldman Sachs land of make-believe” where deceiving investors is not fraud.

The S.E.C. also cited reams of embarrassing, if somewhat irrelevant, emails from Mr. Tourre. In one infamous message, Mr. Tourre refers to a friend nicknaming him the Fabulous Fab.

In turn, Mr. Tourre’s lawyers portrayed their client as something of a scapegoat. While the S.E.C. never charged a top executive at a giant Wall Street bank with fraud stemming from the crisis, it took a hard line with Mr. Tourre, one of thousands of midlevel vice presidents at Goldman.

In the filing on Tuesday, the lawyers described Mr. Tourre’s status at the time of the mortgage deal as a “28-year-old newly promoted vice president working in an essentially unregulated area of the financial sector.” The S.E.C., the lawyers wrote, “has failed to take enforcement action against any of the other people whom the S.E.C. has tactically labeled co-schemers.”

At the heart of the filing was an attempt to undermine the S.E.C.’s requested penalties, which include $910,000 in fines, the forfeiture of $175,463 in ill-gotten gains and $62,858.03 in interest. While Goldman paid for Mr. Tourre’s defense, the S.E.C. is requesting that the penalties come out of Mr. Tourre’s own pocket.

Mr. Tourre’s lawyers say he “has every intention” of paying the penalties himself. But they called the S.E.C.’s request lacking “any legal or factual basis.”

And to bolster Mr. Tourre’s bid for leniency, the lawyers argued that the S.E.C. took an overly broad interpretation of the jury’s verdict. Another mitigating factor, they said, was that Mr. Tourre’s conduct was not “recurrent.”

“His otherwise immaculate nine-year career at Goldman and his efforts to rebuild his life and to start a new career over the last four years demonstrate the isolated nature of AC1,” they said.

The lawyers are also resisting the S.E.C.’s demand for disgorgement of Mr. Tourre’s 2007 bonus, calling it “impermissible double-counting.” When the S.E.C. settled with Goldman in 2010, the lawyers argued, the agency extracted such disgorgement from the bank.

Mr. Tourre provided Judge Forrest with a declaration from Daniel Sparks, the former head of Goldman’s mortgage department, explaining that he did not recall a “specific mathematic relationship between Mr. Tourre’s compensation” and his trading desk’s profitability.

As a plan B for deflecting some punishment, the lawyers argued that Mr. Tourre had suffered enough. Not only has the case ended his career on Wall Street, they said, but it will probably undermine any shot he has at finding work “at anything close to his prior compensation level.”

“The publicity that has attended this case has, to a large extent, served as a self-executing punishment for Mr. Tourre already,” the lawyers wrote. “Mr. Tourre has lived for several years under a media spotlight as a result of the manner in which this case was filed and pursued, a fact that warrants compassion, not additional punishment.”