Louise Story and Gretchen Morgenson raise a good question in their agenda-setting piece in The New York Times this morning: Why was Fabrice Tourre the only Goldman Sachs employee charged with defrauding investors in the Abacus deal, and why was Abacus the only deal it prosecuted filed suit over? (Adding: A reader emails to say “prosecuted” implies criminal charges, so I’ve changed that to be clearer that the SEC can only file civil suits)
They use documents and sources to look up the chain at Goldman, and they scoop that Tourre told his attorneys that he had not acted alone and was part of a “collaborative effort.” His attorneys then told that to the SEC, which declined to prosecute sue anyone else.
Indeed, numerous other colleagues also worked on that mortgage security. And that deal was just one of nearly two dozen similar deals totaling $10.9 billion that Goldman devised from 2004 to 2007 — which in turn were similar to more than $100 billion of such securities deals created by other Wall Street firms during that period.
Story and Morgenson name names here, too. The most prominent mentioned is Jonathan M. Egol, which is interesting because the two have written about him before. Several times.
They led a big piece in December 2009 with Egol. They mentioned him in April of last year when the SEC charged Goldman and Tourre. They mentioned him a day later in a story on Abacus. And Story named Egol the Abacus “mastermind” in a piece two days after that on how “senior bank executives played a pivotal role in overseeing the mortgage unit just as the housing market began to go south.” Egol showed up again a few days later in a story on how the banks manipulated ratings agencies data.
That’s the sound of the NYT saying WTF, SEC.
The Times had the right idea then, and it does today, too. How high did responsibility for the Abacus scandal go? And why is Fab Tourre the scapegoat here when it’s clear there were many other people who were involved in or who knew about the deal?
The paper has a source who explains why the SEC didn’t go after Egol:
Last year the S.E.C. examined Mr. Egol’s role in the Abacus deal in its lawsuit, according to a report by the commission’s inspector general. But Mr. Egol, now a managing director at the bank, was not named in the case, in part because he was more discreet in his e-mails than Mr. Tourre was, so there was less evidence against him, according to a person with knowledge of the S.E.C.’s case.
Funny enough, Virginia Heffernan, writing in the Times a couple of days ago, credited Egol with Goldman’s infamous LDL lingo: “let’s discuss live”:
Goldman’s Jonathan Egol is the first known master. When a trader named Fabrice Tourre described a mortgage investment in e-mail as “a way to distribute junk that nobody was dumb enough to take first time around,” Egol shot back: “LDL.”
Story and Morgenson point out that Goldman’s mortgage desk shared a group email address and that all of them signed off on the Abacus proposal.
And here’s where the story gets very weird. The NYT got access to some of Tourre’s discussions with his attorneys by, well… read this:
These legal replies, which are not public, were provided to The New York Times by Nancy Cohen, an artist and filmmaker in New York also known as Nancy Koan, who says she found the materials in a laptop she had been given by a friend in 2006.
The friend told her he had happened upon the laptop discarded in a garbage area in a downtown apartment building. E-mail messages for Mr. Tourre continued streaming into the device, but Ms. Cohen said she had ignored them until she heard Mr. Tourre’s name in news reports about the S.E.C. case. She then provided the material to The Times. Mr. Tourre’s lawyer did not respond to an inquiry for comment.
You can bet these two paragraphs were lawyered to death. But unfortunately they raise many more questions than they answer, and they’ve already turned into more of a story than the story itself. The paper should have been much clearer on how it got access to the documents and what it actually got its hands on. It says in a statement to New York that it did nothing illegal and that “certain documents were provided to us by a named source,” which implies that it did not have access to the whole computer, as does this Gawker piece, which reports suggests that it wasn’t Tourre’s computer and reports that the Times only saw one document from it. I’d like to see the paper write a follow-up story explaining what happened here.
It’s awfully convenient for Tourre and his legal team that these emails ended up in the New York Times without having to directly leak them to the paper. I’d be miffed if I were Tourre and I was the only one who had been charged in this team effort. It wouldn’t make me angry to see these folks name-checked on the front page of The New York Times:
In the drafted replies, lawyers for Mr. Tourre named the other Goldman employees who they say worked closely on the Abacus deal with him: In addition to Mr. Egol, they included David Gerst, a securities lawyer in the Abacus group and Darren Littlejohn, another lawyer at Goldman who worked on the deal; Cactus Raazi and Gail Kreitman, sales representatives; Shin Yukawa, a credit ratings specialist; and others.
Nor would this:
A former colleague on Goldman’s mortgage desk who now works for another financial firm said he did not understand why Mr. Tourre had been singled out. “That has baffled me from the very beginning. I just can’t even begin to tell you how junior and insignificant his role was,” said this person, who asked not to be named because it could damage his career.
Mr. Tourre’s lawyers also pointed to an e-mail that February from Mr. Egol, which said “the cdo biz is dead we don’t have a lot of time left.”
Reading between the lines here, you can bet that Tourre is on the outs with Goldman. He has a friend’s attorney father telling the paper on the record that he thinks Tourre was ill-served by having Goldman pay for his lawyers instead of hiring his own, and the paper reports that Tourre has been on paid leave for a year.
I’d liked to have seen some explanation of why a potential witness against the company is still on the payroll when he hasn’t worked in a year. It sure makes it less likely that Fab will ever flip, despite having pointed fingers in the past.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.