Bloomberg News

SEC Seeks to Reinstate Claims Against Goldman Sachs’s Tourre

June 14, 2012

The U.S. Securities and Exchange Commission asked a court to reinstate fraud claims it dismissed against Fabrice Tourre, the Goldman Sachs Group Inc. (GS:US) trader accused of misleading investors in a collateralized debt obligation.

U.S. District Judge Barbara Jones in Manhattan last June threw out some of the SEC’s claims after Tourre argued that he couldn’t be held liable under U.S. securities law for foreign transactions that occurred outside the country. Jones cited a 2010 U.S. Supreme Court ruling that U.S. securities laws don’t protect foreign investors who buy stocks on overseas exchanges.

In today’s filing, the SEC cited a recent appeals court ruling and argued that the definition of a “domestic securities transaction” that Jones applied in her ruling “is broader than the test this court employed.” Under the more recent ruling, the SEC requested that aiding and abetting fraud claims against Tourre be reinstated.

The SEC initially sued the London-based trader in April 2010, saying he defrauded investors by not disclosing that hedge fund Paulson & Co. had helped pick the underlying securities for a CDO called Abacus and planned to bet against them. 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.

Pamela Rogers Chepiga, a lawyer representing Tourre, didn’t immediately return a call seeking comment on the SEC’s filing after regular business hours.

Amro Bank

The transactions at issue in the case involved IKB Deutsche Industriebank AG (IKB), which allegedly lost almost all of its $150 million investment, and ABN Amro Bank NV, which assumed the credit risk associated with a portion of a CDO called Abacus.

Jones let the SEC’s case proceed on a claim that Tourre “knowingly, recklessly or negligently” made misrepresentations in the sale of securities to ACA Management LLC, IKB and ABN Amro.

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

To contact the reporter on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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