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Ex-Goldman Sachs Trader Loses Bid for Pretrial Ruling

Former Goldman Sachs Group Inc. trader Fabrice Tourre lost a bid to narrow a U.S. Securities and Exchange Commission lawsuit by arguing he wasn’t liable under U.S securities laws for foreign transactions.

Tourre sought a partial summary judgment, or a ruling before trial, in a 2010 suit accusing him of defrauding investors in a collateralized debt obligation known as Abacus 2007-AC1. The SEC said Tourre failed to properly disclose that hedge fund Paulson & Co. helped pick the underlying securities for the CDO and planned to bet against them.

U.S. District Judge Katherine Forrest in Manhattan today sided with the SEC and said Tourre must defend himself at a trial set to begin July 15 to determine whether he violated U.S. securities law and whether statements or omissions about Paulson’s interests and role in the transaction were fraudulent.

Tourre, citing a 2010 U.S. Supreme Court ruling, claimed he couldn’t be held liable under U.S. law for allegations that he misled investors in foreign transactions, such as those involving Dusseldorf-based IKB Deutsche Industriebank AG and Amsterdam-based ABN Amro Bank NV.

Tourre argued that under the high court’s ruling in Morrison v. National Australia Bank, the transactions that are the focus of the SEC suit weren’t domestic and therefore should be dismissed before trial. The SEC argued that Tourre was in the U.S. when he offered notes to IKB and solicited ABN Amro’s participation in a credit-default swap. IKB allegedly lost almost all of its $150 million investment in the notes.

Fraud Claim

Forrest found that the SEC met its burden and established a domestic component for its fraud claims against Tourre, ruling the evidence would allow a reasonable jury to conclude that Tourre worked in New York at the relevant time.

Forrest also ruled today in favor of the SEC’s claims that Tourre violated securities laws related to ACA Management LLC’s sale of protection on $909 million of the Abacus notes, which defaulted.

“To make the showing, the SEC must prove only that the offeror was in the United States at the time he or she made the relevant offer,” Forrest said in her ruling. “The SEC has satisfied that burden.”

SEC Request

The judge granted the SEC’s request for partial summary judgment on claims that Tourre used the telephone, Internet or e-mail to accomplish his fraud, and that the fraud occurred in connection with a transaction where liability was incurred in the U.S.

“We’re pleased with the decision and look forward to proceeding to trial against Mr. Tourre,” John Nester, a spokesman for the SEC, said in an e-mail.

Pamela Rogers Chepiga, a lawyer representing Tourre, said her client looks forward to defending himself at trial.

“The central point in today’s ruling is that the SEC’s attempt to win the case without a trial has failed,” she said in an e-mailed statement.

The SEC initially sued Tourre in April 2010. After reaching a $550 million settlement with New York-based Goldman Sachs, the SEC filed a new claim against Tourre, saying he gave the company “substantial assistance” as it misled investors.

In 2011, U.S. District Judge Barbara Jones, who presided over Tourre’s case before leaving the bench, dismissed some claims involving IKB and ABN Amro, citing the Morrison ruling.

The high court ruled that U.S. securities laws don’t protect foreign investors who buy stocks on overseas exchanges.

The case is SEC v. Tourre, 10-03229, U.S. District Court, Southern District of New York (Manhattan).

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