The U.S. Securities and Exchange Commission’s lawsuit against Fabrice Tourre should be thrown out, lawyers for the Goldman Sachs Group Inc. trader accused of misleading investors in a product linked to subprime mortgages told a federal judge.
Andrew Rhys Davies, Tourre’s lawyer, said yesterday that the SEC is trying to circumvent a U.S. Supreme Court ruling issued in June, Morrison v. National Australia Bank, that limits the reach of civil claims for acts occurring outside the U.S.
“The SEC is attempting to do an end run around Morrison,” Rhys Davies told U.S. District Judge Barbara Jones in Manhattan.
Rhys Davies said the amended lawsuit, filed by the SEC on Nov. 22, should be dismissed because the transactions involving collateralized debt obligations called Abacus 2007-AC1 occurred outside the U.S. He argued that Tourre can’t be held liable under U.S. securities law for such foreign transactions.
The SEC initially sued the London-based trader in April and accused him of defrauding investors by not disclosing that hedge fund Paulson & Co. helped pick the underlying securities for the CDO and planned to bet against them.
After reaching a $550 million settlement with Goldman Sachs in July, the SEC filed a new claim against Tourre in November alleging that he gave the company “substantial assistance” as it misled investors in a product linked to subprime mortgages.
Tourre’s lawyer said the transactions with the CDOs at issue in the SEC’s complaint were overseas transactions with a German bank and a Dutch bank.
“Here we have a private contract between English and Dutch parties and under no interpretation of Morrison can that be a domestic transaction,” Rhys Davies argued.
Lorin Reisner, a lawyer with the SEC, argued that the transactions that are at the heart of the case occurred in New York, not overseas.
“Abacus was conceived, structured and marketed by Goldman Sachs in New York,” he said. “Fabrice Tourre was sitting at that desk in New York was primarily responsible for that transaction.”
“Tourre and his Goldman Sachs colleagues sent out false and misleading materials from his office in New York,” Reisner said. “It does reflect the domestic nature of the transaction.”
Tourre, who was in court, declined to comment after the hearing, as did his lawyers and lawyers for the SEC.
Jones said she would issue a ruling at a later date.
The case is SEC v. Tourre, 10-03229, U.S. District Court, Southern District of New York (Manhattan).