Ex-Goldman VP Tourre loses bid to narrow

June 05 [Wed], 2013, 16:12
By Jonathan Stempel and Bernard Vaughan

NEW YORK (Reuters) - Former Goldman Sachs Group IncVice President Fabrice Tourre lost a bid to limit a U.S. Securities and Exchange Commission civil fraud case against him over a transaction that led to a $550 million settlement by the Wall Street bank.

U.S. District Judge Katherine Forrest in Manhattan on Tuesday rejected Tourre's argument that a 2010 U.S. Supreme Court decision limiting the reach of U.S. securities laws required the SEC to narrow its case.

The decision is a victory for the SEC and gives it "a stronger tool to go after people who offer securities in the United States, regardless of where the recipient of the offer was located at the time," according to Angelo Savino, a partner at Cozen O'Connor who leads its professional liability practice.

The SEC had accused Goldman and Tourre in a 2010 lawsuit of failing to tell investors that Paulson & Co, the hedge fund run by billionaire John Paulson, helped choose and then bet against risky mortgage-backed securities underlying a collateralized debt obligation they marketed and sold, Abacus 2007-AC1.

Goldman in 2010 agreed to pay $550 million to settle its part of the case, without admitting wrongdoing. Tourre, now a graduate student in economics at the University of Chicago, chose to fight the charges, with Goldman paying his legal fees.

Tourre had argued that fraud allegations concerning the offering of parts of Abacus to two non-U.S. purchasers, IKB Deutsche Industriebank AGand ABN AMRO Bank NV, were not governed by U.S. securities laws.

His argument was rooted in a 2010 U.S. Supreme Court decision, Morrison v. National Australia Bank Ltd , limiting the non-U.S. reach of a key fraud law.

But Forrest said that while Morrison also applied to a law that bans fraud "in the offer or sale of any securities," she said a "domestic offer" could give rise to a fraud claim "regardless of whether it results in a sale."

She said the SEC could pursue this claim against Tourre because a reasonable jury could find that he had conducted a domestic offer, having worked in New York at all relevant times, including when he communicated with IKB and ABN.

Forrest also ruled in favor of the SEC on other parts of the case, including the sale of credit protection by third-party ACA LLC on $909 million of Abacus securities, while denying other parts of its request for partial summary judgment.

A trial is scheduled for July 15.


Pamela Chepiga, a lawyer for Tourre, said in a statement: "The central point in today's ruling is that the SEC's attempt to win the case without a trial has failed. We look forward to a trial on the merits that will vindicate Mr. Tourre."

SEC spokesman Kevin Callahan said the regulator is pleased with the decision and looks forward to a trial.

Goldman spokesman Michael DuVally declined to comment. The bank is not a defendant in the case.

Tourre had gained notoriety in the case for having referred to himself in an email as "fabulous Fab."

Paulson's firm made about $1 billion from Abacus, which the SEC said cost other investors more than $1 billion.

Forrest has yet to rule on other parts of the case, including the extent to which the SEC may refer at trial to the 2008 financial crisis and to Goldman's $550 million settlement.

U.S. District Judge Barbara Jones, who had overseen the case before leaving the bench, in 2011 cited the Morrison decision in dismissing some claims against Tourre over IKB and ABN Amro.

The case is SEC v. Tourre, U.S. District Court, Southern District of New York, No. 10-03229.

(Reporting by Bernard Vaughan and Jonathan Stempel; Editing by Dan Grebler and Leslie Adler)