- The Washington Times - Friday, April 23, 2010

The Goldman Sachs trader at the center of fraud charges filed by the Securities and Exchange Commission will testify before a Senate subcommittee next week, the panel announced Thursday.

Fabrice Tourre, who was named along with Goldman & Co. in the charges filed last week, will testify Tuesday before the permanent subcommittee on investigations, the panel said.

The hearing is the fourth in a series examining the causes of the financial crisis. It also will include testimony from Goldman Chief Executive Officer Lloyd Blankfein, Chief Financial Officer David Viniar and four other current and former Goldman executives.

The SEC charged that Mr. Tourre marketed an investment that officials say was designed to lose value. He failed to tell investors that the mortgage securities in the deal were selected by a hedge fund that was betting they would fail, the agency alleges.

The SEC complaint quotes from an e-mail Mr. Tourre sent in January 2007 in which he bragged about being the “only potential survivor” of a forthcoming financial meltdown.

After the system toppled, he wrote in the e-mail, he would be “standing in the middle of all of these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!”

Mr. Tourre’s lawyer declined Thursday to comment on the matter.

Goldman has called the charges unfounded and says it plans to fight them.

The SEC is conducting a broad probe of the way banks profited from questionable activity ahead of the financial crisis. They are investigating other Wall Street banks besides Goldman.

The case against Goldman has brought attention to high-risk dealings on Wall Street. In particular, it’s shed light on complex products called synthetic collateralized debt obligations that amount to side bets on an investment’s performance. Synthetic CDOs are linked to the values of other investments - in the Goldman case, pools of mortgage securities - but don’t actually contain those investments.

Investment bankers have said there were numerous other cases in which hedge funds designed deals they expected would lose value. The SEC wants to know if banks other than Goldman marketed these deals without telling investors they were designed by people who would profit if investors lost money.

The Senate subcommittee is using Goldman Sachs as a case study to examine the role of investment banks in the financial bubble that led to a worldwide credit freeze in the fall of 2008.

It already has held hearings on the role of subprime lenders and federal bank regulators. On Friday, it will examine how credit-rating agencies helped banks sell risky investments by labeling them as safe.

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