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July 16, 2013

Is the "Fabulous Fab" case a show trial?

After the bursting of the housing bubble and the ensuing near-collapse of the financial system, the Securities and Exchange Commission and other federal financial regulators have been much criticized for not taking cases to trial. Today, as the agency began its case against former Goldman Sachs (GS) trader Fabrice Tourre for the sale of rotten securities, there is finally a trial.

But it’s hard to imagine that a full-throated prosecution of one relatively low-level employee of one of the most powerful financial institutions in the world is what anyone had in mind.

Tourre, a French-born executive, stands accused of selling investors mortgage-backed securities, dubbed Abacus, that he knew were doomed to fail. The deal allowed hedge fund kingpin John Paulsen, who chose the toxic securities that would form the foundation of the derivatives, to pocket $1 billion. Goldman collected millions in fees and was heavily criticized amid allegations that it, too, shorted the securities, in essence betting that the bonds it created would fail. Goldman claimed that it was merely hedging.

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At this point, many Americans are well-aware that there are lies, trickery, deception and above all greed on Wall Street. But the question is whether a jury is going to play along with a case that seems to pin such realities on rogue employees.

“‘This doesn’t rise to the level of a show trial,’ said Dennis Kelleher, a former corporate litigator and Senate aide who now heads Better Markets, an advocacy group lobbying for stricter policing of Wall Street. ‘It’s a joke trial. They are throwing all their might and power at this one scapegoat. Why can’t they do that against the biggest executives who crashed the system and stuffed their pockets with billions in bonuses?'”

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Read full CBS News article here

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