One of several important bits in Goldman’s latest defence against the SEC fraud lawsuit is the reframing of the SEC’s suit to encompass the actions of only one employee, Fabrice Tourre.
Another important bit is the new purgatorial positioning of Tourre — positioning that keeps Goldman’s options open and makes it easier for the firm to throw him under the bus.
Specifically, for the first time, Goldman mentioned Tourre publicly. The firm said that it had not found yet any evidence of misconduct but that, if it does, it will take the appropriate action. Before it said THAT, however, it cleverly laid all the blame for what the SEC is alleging at Tourre’s feet:
The core of the SEC’s case is based on the view that one of our employees misled these two professional investors by failing to disclose the role of another market participant in the transaction, namely Paulson & Co., and that the employee thereby orchestrated the creation of materially defective offering materials for which the firm bears responsibility.
Goldman Sachs would never condone one of its employees misleading anyone, certainly not investors, counterparties or clients…
Were there ever to emerge credible evidence that such behaviour indeed occurred here, we would be the first to condemn it and to take all appropriate actions.
This statement does four important things:
- It subtly blames Tourre for the entire thing (without saying he did anything wrong)
- It establishes that Goldman agrees with the SEC that misleading its client would be a major no-no.
- It puts Tourre in purgatory: OK for now, but potentially in deep doo-doo if any additional evidence comes to light.
- It sets Goldman up to sacrifice Tourre and blame him for any misconduct if that should ever become expedient.
Putting Tourre in purgatory here is wise. It would be dumb for Goldman to fire Tourre, because then he would have every incentive to turn against the firm and drag other executives down with him. Firing Tourre would also make Goldman look guilty (right now, the firm’s position is that it did nothing wrong–so if no one did anything wrong, why would they fire him?)
Similarly, it would be dumb for Goldman to fully embrace Tourre and insist that he did nothing wrong. First, Tourre’s emails are embarrassing, and Goldman’s board undoubtedly views them that way. Second, in our opinion, the SEC’s case is stronger against Tourre than it is against Goldman, so Goldman is smart not to wholly condone Tourre’s conduct.
In any event, Fabrice Tourre is now in an interesting position: Goldman is still associating with him, but they’re doing it at arms-length, thus preserving maximum flexibility.
As long as Goldman stands by him, meanwhile, Tourre won’t have an incentive to go running to the SEC to tell investigators everything he knows.
* As this post went to press, Goldman announced that Tourre has decided to take some time off. Goldman emphasised that this decision was Tourre’s decision–and, technically, it probably was. (He was probably told by his attorney, who was relaying a message from Goldman’s attorneys, that now would be a good time to voluntarily take some time off).
Why does the decision have to appear to be voluntary? Because if Goldman suspended Tourre, it would have to give a reason why it was suspending him. And the reason might make it seem as though Goldman had concluded that Goldman was guilty of something.
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