Bloomberg reports that the SEC is now accusing Tourre of providing Goldman with the more serious charge of "substantial assistance" in snookering investors into buying a CDO made of subprime crap that was doomed to fail.

"The London-based trader, accused of helping the Wall Street firm defraud investors in a product known as Abacus, may face trial after failing to win dismissal of the SEC's case," says Bloomberg.

This past summer, the SEC settled a similar suit against Goldman Sachs for $550 million and a promise from Goldman to change some of its business practices.

mtaylor [at] observer.com | @mbrookstaylor

The Supreme Court has said that if a foreigner buys a security that isn't from the U.S. on an exchange outside the U.S., securities laws don't apply, according to Tourre's lawyers. The Abacus CDOs at the center of the SEC complaint didn't clear on an exchange, and Dusseldorf-based IKB Deutsche Industriebank AG bought them.

"The complaint's failure to allege that any Abacus 2007-ACI transaction took place in the United States requires dismissal," Tourre's lawyers said. The SEC charged both Goldman and Tourre in April with misleading investors over the CDO deal. Goldman settled the SEC case against it by paying $550 million and agreeing to change some of its business practices.

mtaylor@observer.com

Twitter: @mbrookstaylor

Readers may remember the SEC investigation for its colorful antagonist Fabrice "I'm French" Tourre, the esoteric Abacus 2007-AC1 synthetic CDO and the $550 million settlement that concluded the inquiry.

Come on, you guys, you have to tell us about these kinds of things, said Margaret Cole, the FSA's managing director of enforcement and financial crime: "We have repeatedly stressed the importance of firms self-reporting regulatory issues to the FSA in a timely way. GSI did not set out to hide anything, but its defective systems and controls meant that the level and quality of its communications with the FSA fell far below what we expect of an authorised firm. The fact that senior business people at GSI in London knew about Mr Tourre's Wells Notice, but did not consider the obvious regulatory implications for GSI is very disappointing."

The fine could have been steeper, the FSA said, but Goldman got a 30% discount for its cooperation with the regulator. In any case, $27 million amounts to almost nothing for Goldman, whose profits total $3.75 billion for the first half of this year.

As for Fabulous Fab? He's still on paid leave from Goldman. Ah, la justice!

Mr. Tourre, who has been left to fend for himself now that his firm, from which he is on paid leave, has settled separately with the S.E.C., seems to be relying on the old ideal of reasonable doubt. The S.E.C., he says, hasn't proved that he concealed information while working on Abacus 2007-AC1, Goldman's allegedly rigged mortgage deal.

His reply matches the S.E.C.'s complaint, paragraph for paragraph. He "denies allegations of," "denies knowledge or information sufficient to form a belief as to," "denies knowledge or information sufficient to form a belief as to the allegations of," "denies the allegations of paragraph 24, including that the allegations completely and accurately reflect the contents of the partially-quoted document" and "denies the allegations of paragraph 25, except denies knowledge or information sufficient to form a belief as to the allegations of the first or second sentences of paragraph 25."

But! Mr. Tourre occasionally "admits the allegations." He admits, for example, that he helped prepare a "flip book" about Abacus. He also admits, "on information and belief," that Paulson and ACA (a hedge fund and an a investor, respectively) held a "meeting in Jackson Hole, Wyoming at which no Goldman Sachs representatives were present."

The document ends with nine defenses. The eighth is that he's "a French citizen" who "reasonably relied on Goldman Sachs' institutional process," and ergo cannot "be held liable for any alleged failings of that process."

It was a pretty, harmless morning. The first floor of the Dirksen Senate office building was quiet while rows of reporters set up. A handsome couple from the Financial Times kept an upside-down bottle of hand sanitizer between them. The Times’ Louise Story had a mini-bottle of Diet Coke by her laptop. “I’m sure some people have excitement, but not me. I do war,” an editor for the Army Times said in the press office.

Cameramen swarmed around the empty table where the Goldmen executives would sit, then just stood there. A very pretty Bulgarian-born BBC producer ran her hands through her hair. The little-known Goldman Sachs major-domo John Rogers stood quietly by himself. He is said to resemble John Le Carré’s George Smiley, trench coat and all, but looked like another slightly rumpled reporter. A Senate staff member stood a few feet away. “Frankly, I’m a little afraid of them,” the staffer said. “They’re going to try to school the U.S. Senate, and make them look silly.”

The hearing began slowly. Four senators, less than half of the committee, were in their seats. Senator John McCain looked sour and thick. He faced down. Lloyd Blankfein wouldn’t appear for hours, but, thrillingly, the first group of Goldman witnesses included 31-year-old Fabrice Tourre, a vice president the S.E.C. charged with fraud this month, along with the firm. They allegedly allowed the billionaire John Paulson, who wanted to bet against the housing market, to pick bad mortgage securities that were then bundled up and sold to unwarned Goldman clients. Until now, no one had been quite sure what he looked like: In person, he was handsome, wearing a nicely cut suit with a smart tie.

Maureen Dowd, a few seats away from the hand sanitizer, chewed gum while reading along with the opening remarks from Senator Carl Levin, the chairman. She checked her BlackBerry, but her other cell phone rang: do-doo-do, do-doo-do. She took it out of her handbag and powered it off, but that made a little noise, too. She checked her BlackBerry again.

“At this time I would ask all of you to please stand and raise your right hand,” Senator Levin said. Mr. Tourre, known to all of the financial world now as “Fab,” is short. The sound of the photographers’ clicks was gargantuan. The Goldman Sachs opening statements were proud. “I would not have stayed if the people I worked with did not have high ethical standards,” former mortgage department head Dan Sparks said.

“Am I pronouncing your name correctly?” Senator Levin said to Mr. Tourre, saying “tour.”

“Uh,” he answered. “Yes, you are, Mr. Chairman.” The French-born banker sounded like Steve Martin playing a villain. His “suit” had two syllables. His “echo” was “eco.” He put his back into his opening statement, which wasn’t rude, but was italicized.

SENATOR LEVIN'S OPENING round of questions was more astounding. He started with a synthetic CDO deal called Anderson. “Instead of disclosing that you had half of the other side of the deal, half the short side, you did not tell them that,” he said. “Instead, you told your salesmen, ‘Keep! Pushing! The deal!’ Now answer my question. How do you get comfortable with these securities?”

“Clients who didn’t want to participate in that deal did not,” Mr. Sparks answered. He was calm and succinct. Anderson was downgraded from AAA to junk in seven months, the senator said, and he moved on to another soured mortgage deal. “Look at what your sales team was saying about Timberwolf,” he said, reading from an email from former Goldman executive Tom Montag. “‘Boy, that Timberwolf was one shitty deal.’”

“Some context might be helpful,” Mr. Sparks said. He offered that the vulgarity had referred to his own performance.

“Come on, Mr. Sparks! Should Goldman Sachs be trying to sell a shitty deal? Can you answer that one? Can you answer that one, yes or no?” He couldn’t.

Shitty, shitty, shitty, Mr. Levin continued.

TIME BEGAN TO MOVE slowly in the Dirksen building. Senator Collins pressed the four to say whether Wall Street had a duty to act in the best interest of its clients. The answers were long and curvy. “I’m starting to share the chairman’s frustration,” she said.

Senator John Ensign came in and out, carrying what looked like iced tea. The morning became afternoon. A protestor in a prison suit yawned twice. Ms. Dowd went out. Senator Mark Pryor asked if any of the witnesses’ personal actions contributed to the financial downturn. “Regret, to me, means something you feel you did wrong. And I don’t have that,” said Mr. Sparks. He was the group’s de facto leader. His voice was monotone, crisp, unexcited and unemotional. His answers were long and dry. The room stayed still. Three hours became four.

Even when Mr. Tourre admitted that he should have disclosed that Mr. Paulson had a role in building the deal that the S.E.C. has sued over, the momentous admission sort of melted into the rest of the testimony.

The room exploded when the gavel came down. “How do you sleep at night, Fab?” a protestor said, pressing up to him. He led an ocean of photographers out of the room, half-smiling.

Chief risk officer Craig Broderick and chief financial officer David Viniar, who came next, were even more leveled. Weathering the mortgage meltdown was much more mundane than betting on or against anything, Mr. Viniar’s opening remarks said. It was about positions and risk management.

Then something spectacular happened. When Senator Levin reminded the executives that his firm thought its deals were “shitty” as they were peddling them to clients, he asked what Mr. Viniar felt when he read that word in the committee’s exhibit book. “I think,” he said, “that’s very unfortunate to have on email.”

The room gasped. Here, cutting through the tedium, was true villainy!

Gorgeous and theatrical! An executive who was sorry not for what was said, but that it was recorded! On cue, because a vote on the financial bill had been called, the committee disappeared for a recess. Mouths hung open. The committee returned. When Senator Levin sat down, Mr. Viniar corrected himself; he took out the email part.

Just after 5 p.m., seven hours after the hearing began, in the middle of a senator’s speech, Mr. Blankfein entered the room. The hugeness of the crowd of photographers who gathered around him—their clicks making a noise that nearly drowned out the senator—was dreamlike.

But it was late. The group of protestors dressed in prison outfits left before he finished.

When the chief executive, reading from his prepared remarks, said that the day the S.E.C. announced the suit was one of the worst days of his professional life, it just didn’t sound like he meant it. As the hearing, which had just two momentary breaks, ticked into its 10th hour, the pugilism was long gone. One out of the 10 committee members stayed for the end.

It was almost serene. In the wake of one of the worst financial catastrophes in the country’s history, the chief executive of one of the most powerful financial institutions in the world sat alone at a table. But the circus had left. It was boring.

mabelson@observer.com