HALLELUJAH! The Security and Exchange Commission (SEC) FINALLY have accused Goldman Sachs of fraud! Will wonders never cease? At the heart of the matter are ‘Mr. Fabulous Fab’, Fabrice Tourre, Goldman Sachs’ leverage trade executive and hedge fund guru, John Paulson. As CEO of Paulson & Co., John hired Goldman Sachs to put together an investment package involving mortgage tranches, those nasty bundles of mortgages that helped cause the whole Crash of 2008. Wall Street had a rough day as a result of the news of this story.

In 2007, Paulson approached the Wall Street mega-firm, who then assigned Tourre to handle the job. In an email cited by the SEC, Fabrice wrote to a friend that, “More and more leverage in the system. The whole building is about to collapse anytime now…Only potential survivor, the fabulous Fab…standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all the implications of those monstrosities!!!” Just like Jimmy from “Seinfeld”, you gotta love a guy who speaks of himself in the third person. Even creates his own nickname!

Known as the ‘Abacus deal’, Tourres put together the package which essentially was a ‘short play’ on U.S. mortgages, meaning that if the value went down, Paulson and his investors would clean up. The SEC is not accusing Paulson of any wrong doing, as he did not actually sell the packages that Tourre put together. In fact, Paulson was betting against them! The SEC charges that Goldman Sachs was selling the securities Tourre bundled without their investors knowing that it was a short-play.

The scheme worked like this: Paulson first purchased credit default swaps in 2006 betting against the housing market. He then went to Goldman (after other banks turned him down) and got them to create collateral debt obligations backed by these bundles, or tranches, of mortgages that Tourre put together. Goldman Sachs then sold these CDOs to people, some of whom were allegedly led to believe that these securities were a play for the housing market getting better, or, as they say, a long-play. But, the housing bubble burst, the CDOs became worthless, and Paulson’s CDSs made him and his pals billions of dollars! Goldman Sachs got $15 million in fees from Paulson to put the package together, of which, I’m sure, ‘Fab’ Tourre got a nice bonus for.

Goldman Sachs denies any wrong doing. In fact, they claim they lost $90 million dollars on the whole thing. The SEC has named Tourres as a principal defendant in the charges they are making. How much you want to bet that he will be sacrificed on the alter of finance? Maybe John Paulson will get a CDS and make a bet on the fate of Fabulous Fabrice Tourres? As for Goldman Sachs, the SEC has so far only charged the company with civil fraud. Paulson and his investors made a reported $15 Billion on the whole scheme, himself pocketing $4 Billion dollars. Not a bad paycheck for 2-3 years of finagling.