SEC elated after claiming Tourre's scalp

It was one of the hottest days of the year in New York when the air conditioning unit in the office where Fabrice Tourre and his lawyers were devising their legal strategy broke down. Mr Tourre's attorney, John "Sean" Coffey, felt faint.

A motorised fan was called in, sending Mr Coffey's courtroom documents into disarray. Mr Tourre rushed to his lawyer's side and began fanning the perspiring Mr Coffey while holding down the billowing pages of his attorney's notes. "He is a full-service client," quipped Mr Coffey.

For the US securities regulator, which accused Mr Tourre of defrauding investors in a subprime mortgage deal known as Abacus, the former Goldman Sachs trader is something much more. He is a symbol of Wall Street greed and the kind of scurrilous industry practices that helped drag the US economy into one of its longest-ever recessions.

The US Securities and Exchange Commission's case against Mr Tourre ended in dramatic fashion this week after a jury in a lower Manhattan court found the former trader liable for misleading investors in the complex deal. It was a rare courtroom win for a US government agency that has been under pressure to prove that it can hold bankers to account for their alleged misbehaviour in the run-up to the crisis.

It was also an unexpected scalp for Matthew Martens, the SEC official who acted as the agency's lead attorney in the trial. He decided to try the case personally to show inside and outside the SEC that the regulator was not afraid to take on difficult trials.

Even within the commission, the strength of the case against Mr Tourre has been fiercely debated. Back in 2010, the government agency narrowly voted 3-2 to go ahead with the charges, and lawyers internally debated the merits of the action.

The SEC accused Mr Tourre of hiding from investors the fact that Paulson & Co - a hedge fund run by billionaire John Paulson - helped select the mortgages referenced in the "synthetic collateralised debt obligation" and then bet against it.

In emails sent to his former girlfriend, a Goldman saleswoman in London, Mr Tourre joked about selling Abacus to "widows and orphans". In another message, he referred to himself as the "Fabulous Fab" creating "monstrosities" in the capital markets. Those colourful emails singled out the young trader to the SEC.

"It was the sort of boastful bulls**t that lots of people engage in," said one former Goldman partner. "Clearly, in retrospect, it was all very unfortunate."

While the bank opted to settle, Mr Tourre began his long legal battle against the SEC. Goldman is paying for his lawyers, including Mr Coffey, a former assistant US attorney, and Pam Chipega, an ex-federal prosecutor now at Allen & Overy.

From their cluttered ground floor "war room", only yards away from the federal courthouse, Mr Tourre and his lawyers worked on his defence. They sought to portray the former trader as a small cog in Goldman's CDO machine and a scapegoat for the sins of the wider financial industry.

For their part, lawyers for the SEC worked 18-hour days during the trial, focusing on the emails and offering documents related to the Abacus deal. After long days at court, they changed into shorts and T-shirts and decamped to a stuffy office plagued with its own air conditioning problems.

Since January, Mr Martens is said by people familiar with his activities to have spent 90 per cent of his time preparing for the trial, underscoring the high stakes involved in the SEC's case. Mary Jo White, the newly installed chair of the SEC, sent the team an encouraging email at the start of the trial.

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Inside the SEC, Mr Martens has a reputation for being confident, blunt and not shy of turning down cases he thinks are half-baked. At an internal town hall of enforcement lawyers, one senior attorney referred to Mr Martens as a "f***ing case killer", which later prompted an apologetic email to the trial unit.

The trial ended unexpectedly early after Mr Tourre's defence team decided not to call any additional witnesses. Mr Tourre's lawyers had hoped this would send a "confident message" to the nine jurors, according to a person familiar with the team's thinking. In hindsight, the move was a gamble that did not pay off.

In a forceful closing argument, a stern Mr Martens exhorted the nine members of the jury not to follow Mr Tourre into a "Goldman Sachs land of make-believe".

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On Thursday, after the jury announced their verdict, Mr Tourre and his lawyers silently decamped back to their war room. Mr Martens and his team grabbed burgers from McDonald's, before dashing for an Amtrak train back to Washington, where SEC officials were said to be elated with their work.

The Paris-born Mr Tourre, now 34, is on summer break from the University of Chicago, where he is studying for a doctorate in economics. He faces penalties including fines and a possible disgorgement of profits which will be decided by the judge in the case, Katherine Forrest, over the coming months.

For Goldman, the decision is an unwelcome reminder of the scandals that plagued it in the immediate aftermath of the financial crisis. The bank published an advertisement on Thursday seeking an "ecommunications analyst" to review its employees' emails "to mitigate reputational and regulatory risk to the firm".

According to people familiar with his employment contract with Goldman, Mr Tourre is not indemnified for legal liabilities, meaning that he would personally have to pay any fines levied by the judge unless the investment bank decides to pick up his tab.

Lawyers say Mr Tourre is likely to appeal against this week's decision, setting the stage for more long nights and harried days of potentially sweaty legal work.

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