The deals at the heart of a regulatory lawsuit weren't designed to defraud investors, Goldman Sachs trader Fabrice Tourre has said.

The Wall Street Journal reported on Tuesday that in prepared testimony for a Senate hearing, Tourre said the Abacus bonds the Securities and Exchange Commission allege were hand-picked by a hedge fund manager who bet against them were "not designed to fail."

Goldman "didn't have massive shorts against the housing market," Goldman's Chief Executive Officer Lloyd Blankfein in a prepared statement said.

The controversy turns on what Goldman told investors who were purchasing the Abacus bonds but also on the impression of a financial firm betting both ways in a market that burst two years ago, sending the economy into a massive recession, costing the U. S. economy millions of jobs.

"I don't know if Goldman Sachs has done anything illegal. From the reading of these e-mails, and from information this committee has uncovered, there's no doubt their behavior was unethical," U. S. Sen. John McCain, R-Ariz., in an early round of comments, said.

"It's gambling, pure and simple, raw gambling," Sen. Claire McCaskill, D-Mo., said, with the financial reform bill at the forefront of the Senate's agenda.

The size of the derivative market has exploded in recent years, as it includes huge bets investors make on the direction a market will take, even if they have no particular stake in that market.

McCaskill said, "They're called synthetic because there's nothing there." (With Inputs from Agencies)