NEW YORK (Reuters) - It was billed as the hottest trial to come out of the Securities and Exchange Commission's investigations of the financial crisis.
But increasingly, the only thing hot about the SEC's fraud case against former Goldman Sachs trader Fabrice Tourre is the weather outside the Manhattan federal courthouse.
Amid conflicting testimony on complex financial concepts, lawyers on both sides, as well as the judge, have expressed concerns that jurors are growing bored and getting lost.
"I'm going to tell you what I think is obvious, which is we're losing some of the jurors here who are trying valiantly to follow and stay awake," U.S. District Judge Katherine Forrest said on the third day of the trial.
The SEC accuses Tourre of misleading investors in a complex deal linked to subprime mortgages known as a synthetic collateralized debt obligation in 2007.
The SEC said Tourre, 34, failed to disclose that Paulson & Co Inc, the hedge fund of billionaire John Paulson, had played a role in selecting mortgage-backed securities tied to the CDO and that he planned to bet against the deal.
When the securities went toxic, the investors lost about $1 billion, while Paulson made about the same amount.
Tourre, who faces fines and a lifetime ban from the securities industry, denies the allegations. Goldman Sachs Group Inc, originally a co-defendant when the case was filed in 2010, settled for $550 million without admitting or denying the allegations.
So far at trial, the SEC has put five witnesses on the stand in an effort to educate jurors about the deal, known as Abacus 2007-AC1, and Paulson's strategy of betting against the U.S. housing market in the run-up to the 2008 financial crisis.
Words like "credit default swap," "ABX index," "term sheet" and "flip book" have been common. The judge has frequently interrupted lawyers on both sides to ask witnesses to define financial jargon for jurors, who include a recent medical school graduate, a former stockbroker and an Episcopal priest.
'BAD SIGN WHEN JURORS ARE SLEEPING'
While a few jurors have been taking notes, the majority are not. One juror has appeared on at least two days of testimony to nod off.
Lawyers outside the Tourre case said that, in general, juror boredom or signs they are falling asleep cuts against the government, which has the burden of proof.
"It's a very bad sign when jurors are sleeping, but it can happen in a technical case no matter how good the lawyers may be," said Stephen Crimmins, a former SEC lawyer at K&L Gates.
Forrest at one point joked she had considered offering jurors popcorn to help keep their attention, but didn't out of concern for "dental issues."
Both sides have acknowledged how tedious the case has become. Sean Coffey, a lawyer for Tourre, said on Tuesday that jurors appeared lost. Matthew Martens, a lawyer for the SEC, said Thursday that changes he made the night before to the witness line-up was in part due to juror boredom.
One of the biggest potential setbacks so far for the SEC has been the testimony of Paolo Pellegrini, a former Paulson managing director.
At issue was the key question of whether people knew Paulson's fund bet against the CDO as a short, as opposed to being invested in its success as an equity investor, and what Tourre disclosed about that wager.
Pellegrini said he told ACA Capital Holdings Inc, a company that Goldman hired to select the Abacus portfolio, that Paulson intended to short the deal. The testimony contradicted SEC claims that ACA wrongly believed Paulson was an equity investor in Abacus due to Tourre's conduct.
But the SEC the next day elicited testimony from Jonathan Egol, a current Goldman managing director and Tourre's former boss, that cast doubt on the way Tourre described Paulson's role in the deal when emailing the same ACA executive Pellegrini spoke with, Laura Schwartz.
Egol, who himself became a target of the SEC's investigation but ultimately wasn't sued, said he would not have called a short-seller like Paulson a "transaction sponsor," the term used by Tourre to describe Paulson to ACA.
On Friday, the SEC sought to be even more direct about how Tourre allegedly misled ACA, calling former Goldman saleswoman Gail Kreitman, who was a contact between Goldman and ACA.
"I thought they were a long investor," she said of Paulson.
The SEC then played a recording of a January 17, 2007, call between Kreitman and an employee at ACA, Lucas Westreich, where she said Paulson would be taking "a hundred percent of the equity" in Abacus.
An email dated the same day showed Tourre had asked Kreitman to call him to discuss ACA and Abacus. Kreitman said her primary source of information on Abacus was Tourre, although she said she could not remember who exactly told her Paulson was an equity investor.
TOURRE TO TESTIFY
The question remains whether the five women and four men on the jury caught these and other nuances of the case.
In the coming week, the answer may depend on the testimony of Schwartz, the former employee at ACA. The SEC has said Schwartz will testify about her interactions with Tourre and her understanding Paulson was an equity investor in Abacus.
Tourre's lawyers have said they will try to raise doubts about her credibility in the minds of the jurors. The SEC recently closed an investigation into Schwartz related to ACA's role on a different CDO, and Tourre's lawyers have questioned whether that could influence her testimony.
Tourre himself could take the stand as early as Wednesday, Martens said, giving the one-time Goldman vice president and current University of Chicago economics PhD student a chance to connect with jurors.
Other potential witnesses include Paulson, who Coffey said Friday was still on the defense witness list. The judge estimated Paulson could testify August 1.
Forrest said Friday that would mean the trial would end later than she originally anticipated. The judge has threatened putting time limits on the lawyers to speed the trial along.
Lawyers, aware of how dry the case at times has become, appear to be trying to speed it up, cutting witnesses and even some of the jargon when possible.
During Friday's testimony, Kreitman was asked by an SEC lawyer, Bridget Fitzpatrick, if she had worked on synthetic CDOs before joining Goldman. She hadn't, she said, instead working on cash securities.
"I can throw out the acronyms if you want," Kreitman said.
"We're OK on acronyms for now, Ms. Kreitman," Fitzpatrick said, to laughs.
The case is SEC v. Tourre, U.S. District Court, Southern District of New York, No. 10-03229.
(Reporting by Nate Raymond; Additional reporting by Bernard Vaughan; Editing by Eddie Evans and Claudia Parsons)
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