Conviction of ‘Fabulous Fab’ shows rising value of email in financial crime cases

After a trial in which his emails presented in evidence undermined his credibility, proved his crime and dismantled his defense, Fabrice Tourre, the embattled former trader for Goldman Sachs, last week was found liable of civil securities fraud. The US Securities and Exchange Commission filed charges against Tourre in 2010.

Tourre, who infamously referred to himself as “Fabulous Fab” in a 2007 email to his girlfriend, had fought the SEC’s presentation of his emails as evidence. His lawyers argued before the trial’s start in a Manhattan federal courtroom that the “Fabulous” email, in particular, was a personal communication and irrelevant.
The judge disagreed and allowed the prosecution to read the email to the jury in its opening statement. It was a fitting start to a trial that hinged largely on the strength of electronically stored information or “ESI” pulled from Tourre’s email accounts at his computer at Goldman Sachs and his personal one.

“The whole building is about to collapse,” wrote Tourre

The verdict on August 1, 2013, was a major win for the SEC in a David-Goliath matchup. Two prosecutors faced off against four Goldman Sachs-paid defense attorneys and several front-row supporting counsel as working spectators.

The SEC had accused Tourre of misleading a Goldman investor, ACA Management, into believing his firm would invest in a mortgage-backed security it ultimately bet against. The pivotal email by Tourre in January 2007, as global financial markets neared a meltdown, said:

“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 levered, exotic trades… created without… understanding all the implications of those monstruosities (sic)!!! “

It continued:

“Anyway, not feeling to guilty about this, the real purpose of my job is to make capital markets more efficient and… provide the US consumer with more efficient ways to leverage and finance himself, so there is a humble, noble, and ethical reason for my job ; )  amazing how good I am in convincing myself!!!”

The prosecution used this “Fabulous” email to show Tourre’s state of mind concerning the fraudulent dealings with ACA. In other emails, Tourre called the derivative investment he was selling “a product of pure intellectual masturbation” and described it as “a little Frankenstein turning against his own inventor.”

The SEC used several emails from or to Tourre to present the flow of fraudulent activities to the jury in a “real-time” chronology. It had an impact. During its day-and-a-half deliberations, the nine-person jury requested for further review an email that implied Tourre’s knowledge of the fraudulent activity.

Despite warnings, incriminating emails persist

Tourre is not the first executive to send compromising email, and he won’t be the last. Yet the significance of his emails to the SEC’s case could sound an alarm for those who write recklessly via email.

Six years after Tourre’s sending of the “Fabulous Fab” email and many human resource department warnings later by companies in every region, email etiquette in professional settings show few signs of improving.

In March 2013, emails by DLA Piper lawyers that appeared to make light of over-billing of former client, Adam Victor, surfaced in a New York state court case in which Victor accused the firm of fee-churning. “That bill shall show no limits!” one DLA attorney wrote to another. The firm settled in April.

“I don’t know what [DLA Piper] was thinking. But whatever they were thinking, they were wrong,” Larry Hutcher, Victor’s attorney at Davidoff Hutcher & Citron, in New York, told ACFCS.

This firestorm came on the heels of the revelation in January that Morgan Stanley executives, selling derivative investments to a Taiwan bank, referred to the toxic instruments as the “Nuclear Holocaust,” “Subprime Meltdown” and “Mike Tyson’s Punchout” in internal exchanges. These emails surfaced in a civil suit by China Development Industrial Bank seeking $240 million in damages. They are thought to play a decisive role in showing Morgan Stanley knowingly misrepresented the investments it sold the plaintiff.

“Smoking guns” easier to find than ever

Such cases show the perils of engaging in uninhibited electronic messaging in professional settings, where each send leaves behind a potentially compromising record.

“The issue is not the sending of the emails,” says attorney Jacob Frenkel, partner at Shulman Rogers in Potomac, Maryland, and head of the firm’s Security Enforcement and White-Collar Criminal practices. “The issue is the thought and wording.”

For prosecutors, plaintiffs, attorneys and others, the regrettable email is a gift. Emails can show state of mind and can be used to great effect in front of a jury. In financial crime cases, emails can serve up an array of material, from motivations to “To” lines incriminating involved parties.

Social media and text messaging have shown to be equally lucrative sources of evidence. Search tools and analytics have made “smoking guns” easier to identify.

“They almost always exist and locating them has become easier with technology,” attorney Allison Walton, CEO of Fortis Quay, tells ACFCS.

To be sure, most mature organizations train employees on email etiquette as part of compliance and education initiatives. Walton says doing so should be a mandatory best practice. But, in the end, organizations must trust the judgment of the person who is communicating, and that’s a shaky proposition.

“The reality is that we are dealing with human nature and behaviors that are difficult to change,” Walton says.