Factbox: Tourre verdict boosts SEC's post-crisis trial record

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Published August 01, 2013

| Reuters

Holding people liable for roles they played in the 2008 financial crisis has not been easy for the U.S. Securities and Exchange Commission, which a jury ruled mostly for on Thursday in the civil fraud trial of former Goldman Sachs trader Fabrice Tourre.

The SEC says it has brought enforcement actions against 157 people and entities and collected $2.68 billion in penalties and other monetary judgments in response to the crisis. Only three of these cases have gone to trial, and the results, at best, are mixed.

Here's the agency's scorecard so far.

RESERVE PRIMARY FUND:

September 16, 2008 was a dark day indeed: One of the largest money market mutual funds on Wall Street "broke the buck," as the value of its shares fell below $1, deepening panic on Wall Street and causing heavy losses to investors.

The SEC in 2009 sued two entities and two individuals including Bruce Bent, the chairman of Reserve Management Co, accusing them of failing to tell investors about the $62 billion Reserve Primary Fund's vulnerability arising from the bankruptcy filing of Lehman Brothers Holdings Inc.

In November 2012, a jury in Manhattan cleared Bent of civil fraud charges. His son, Bruce Bent II, was cleared of knowingly violating securities fraud laws but found liable on one count of negligently violating them. The jury also held two companies, Reserve Management Co Inc and Reserve Partners Inc, liable for securities fraud.

STOKER:

The SEC in October 2011 sued Brian Stoker, a former Citigroup Inc manager, for his role in a $1 billion collateralized debt obligation the bank issued called Class V Funding III.

Citigroup agreed to settle for $285 million in a deal whose approval has been tied up in courts after U.S. District Judge Jed Rakoff rejected it, criticizing the SEC's policy of allowing defendants to settle without admitting or denying allegations.

Stoker, meanwhile, headed to trial on claims he didn't tell investors in the 2007 CDO that the bank had made a $500 million bet against the underlying pool of mortgage securities.

A jury cleared Stoker in July 2012, issuing an unusual statement: "This verdict should not deter the SEC from continuing to investigate the financial industry, to review current regulations, and modify existing regulations as necessary."

TOURRE:

In 2010 the SEC accused Goldman and Tourre in a 2010 lawsuit of failing to tell investors that Paulson & Co, the hedge fund run by billionaire John Paulson, helped choose and then bet against risky mortgage-backed securities underlying a collateralized debt obligation they marketed and sold, Abacus 2007-AC1.

Goldman agreed to pay $550 million to settle its part of the case, without admitting wrongdoing. Tourre, now a graduate student in economics at the University of Chicago, chose to fight the charges, with Goldman paying his legal fees.

After two weeks of testimony in Tourre's trial, in which lawyers for the SEC argued his behavior represented "Wall Street greed," a jury found him liable in six of the suit's seven counts, concluding that he did mislead investors about the deal.

(Reporting by Nate Raymond and Emily Flitter; Editing by Steve Orlofsky)

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