Almost exactly five years after the U.S. financial system came within a whisker of complete collapse, the Securities and Exchange Commission has managed to hold an individual banker accountable for the mess.
Don’t break out the champagne. Fabrice Tourre is no arch-criminal, conspiring to bring down the world’s biggest banks and wreak havoc on hapless homeowners nationwide. At the time of his misdeeds, he was 28 years old, and as foolish as any brash, overpaid investment banker of that age is likely to be.
Should he have known better than to brag about persuading investors to take the other side of trades that hedge fund manager John Paulson had a hand in structuring? Almost certainly. Might he have spoken up against a deal that he thought could be bad for the buy-side clients he was pitching? We’d all like to think he would at least voice a concern to his boss, rather than just comforting himself with the idea that those investors should know enough to do due diligence on any such transaction.
But should he have violated what his former boss testified were the bank’s own rules on client confidentiality to tell those investors the details of Paulson’s role – and Paulson’s identity?
The truth is that Tourre was simply part of the Wall Street machine. He didn’t question the way things were done. He did what he was instructed to do by his bosses, and what he was told was legal by his firm’s lawyers. Yes, following orders is no defense against illegal actions. But Tourre wasn’t being told to take a gun and murder innocent civilians. He wasn’t told to close his eyes to illegal dumping of toxic chemicals or the marketing of unsafe consumer products. He was doing business the way everyone else on Wall Street was doing it.
It’s hard to imagine that this solitary trader is somehow more culpable than Goldman Sachs CEO Lloyd Blankfein, say. Or Dick Fuld, erstwhile CEO of Lehman Brothers. Or the two Bear Stearns hedge fund managers who were acquitted several years ago by another jury.
If Tourre is guilty, then several hundred of the thousands of other 28-year-olds on Wall Street in 2007 also should be held accountable for their actions, as should their bosses, and the firms they worked for. Instead, every case brought against Wall Street bankers or their firms has been dropped or settled. Many of those settlements allowed the firms to neither admit nor deny responsibility for the alleged misdeeds.
So who now is held up as the guilty party? One man, now 34 years old. The word “scapegoat” springs to mind.
Reckless and negligent behavior was a hallmark of Wall Street’s behavior in the years leading up to the crisis. Carelessness clearly also was an issue: Tourre testified that he probably used another document when he was preparing information on the now-infamous Abacus deal, and cut and pasted language into the information he sent out about the deal. That error or oversight or act of commission (depending on your view of the transaction) may have made recipients believe Paulson’s hedge fund was going to invest in the transaction alongside them, when he actually was taking the opposite view: that the securities in the portfolio would decline in value.
If we look back at the events of 2007 and 2008 in another two decades and find that nobody was held accountable in any significant way for the crisis, that would be demoralizing. Still worse, however, would be if it goes down in history that one Fabrice Tourre was the sole individual to be convicted for misdeeds associated with the crisis.
That would exaggerate his importance and downplay the nature of what actually happened. Worst of all, it makes it possible for Wall Street firms to tsk-tsk-tsk and say how deplorable it is that individual bad actors were really behind the crisis, when the reality is that Tourre, at most, represents only the kind of Wall Street groupthink that led to the collapse of Lehman and Bear Stearns in 2008.
So, why was Tourre convicted? The SEC clearly felt that it badly needed one conviction, and not just a settlement, on its books. Going after Goldman Sachs was always going to be a risky proposition, and indeed, the case levied against the firm itself was settled only about six months after it was filed, nearly three years ago. So the agency threw all its resources into the case against Tourre.
Then there’s still the general anger within America as a whole, probably within the jury pool, that no one has yet been held to account. Offered the chance to change that, and not having to find guilt beyond reasonable doubt, jurors may have been swayed by this. “He was the one that didn’t get away,” Beverly Rhetts, one of the nine jurors, said after the verdict, according to The New York Times.
Then there is also the fact that Tourre’s lawyers gambled by not presenting a defense. Many of the SEC’s witnesses made points that Tourre’s defense attorney drew on in his closing statements, but the decision not to actively present a defense may have appeared as arrogant to the jury.
Even so, the verdict in Tourre’s case is far from satisfactory. On the one hand, it goes too far – convicting a man of being foolish and holding him accountable for his firm’s policies and strictures as well as his own errors. By the same token, it doesn’t go far enough. Goldman Sachs and Tourre’s bosses there shouldn’t have been allowed to escape their share of whatever judgment is doled out. And some measure of blame should be reserved for the investors, who had every reason to be wary and do intensive due diligence in the product they were being pitched by Goldman Sachs, which has never had the reputation of being a philanthropic entity.
So save the champagne for another occasion.
