NEW YORK: Former Goldman Sachs Group Inc Vice President Fabrice Tourre lost a bid to limit a US Securities and Exchange Commission civil fraud case against him over a transaction that led to a $550 million settlement by Goldman.
US District Judge Katherine Forrest in Manhattan on Tuesday rejected Tourre's argument that a 2010 US Supreme Court decision limiting the reach of US securities laws required the SEC to narrow its case.
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, known as 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-US purchasers, IKB Deutsche Industriebank AG and ABN AMRO Bank NV, were not governed by US securities laws.
His argument was rooted in a 2010 US Supreme Court decision, Morrison v. National Australia Bank Ltd, limiting the non-US reach of a key fraud section of the Securities Exchange Act of 1934.
Forrest said Morrison's reasoning applied to another section of the 1934 law that the SEC said Tourre violated, and which bans fraud "in the offer or sale of any securities."
But Forrest said a "domestic offer" may be actionable "regardless of whether it results in a sale," and that a reasonable jury could find Tourre conducted a "domestic offer" because he had 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.
Kevin Callahan, an SEC spokesman, said the agency is pleased with the decision and looks forward to the July 15 trial.
"The central point in today's ruling is that the SEC's attempt to win the case without a trial has failed," Pamela Chepiga, a lawyer for Tourre, said in a statement. "We look forward to a trial on the merits that will vindicate Mr. Tourre."
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.
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