Former Goldman Sachs Group Inc. (GS:US) trader Fabrice Tourre lost a bid for a ruling that he wasn’t liable under U.S securities laws for foreign transactions while the U.S. Securities and Exchange Commission won a ruling that Tourre violated a provision of U.S. securities law.
Tourre had sought summary judgment, or a ruling before trial, in a lawsuit filed against him by the SEC. U.S. District Court Judge Katherine Forrest in Manhattan today denied his motion and granted the SEC a partial ruling that Tourre had violated a provision of the Securities and Exchange Act.
Tourre, citing a 2010 U.S. Supreme Court ruling, claimed he couldn’t be held liable under U.S. securities laws for foreign transactions, such as those he made for Dusseldorf, Germany-based IKB Deutsche Industriebank AG, 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.
Under the Morrison v. National Australia Bank ruling by the Supreme Court, Tourre argued the SEC’s claims should be dismissed because they involved transactions outside the U.S.
Forrest ruled that the SEC had established a domestic component of its fraud claim against Tourre tied to misrepresentations he made in connection with ACA Management LLC’s sale of protection on $909 million of the Abacus notes, which defaulted.
The judge granted the SEC its request for partial summary judgment on an Interstate Commerce claim that Tourre used the telephone, Internet or e-mail to accomplish his fraud, and a claim that the fraud occurred in connection with a transaction in which liability was incurred in the U.S.
The SEC 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 Abacus and planned to bet against them.
“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. It has cited to record evidence that would allow a reasonable jury to find that Tourre worked in New York at all relevant times. It has also cited to record evidence that would allow a reasonable jury to conclude that he e-mailed and called both IKB and ABN to discuss possible transactions.”
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 Supreme Court ruling.
The high court ruled that U.S. securities laws don’t protect foreign investors who buy stocks on overseas exchanges.
Pamela Rogers Chepiga, a lawyer representing Tourre, didn’t immediately return a voice-mail message left at her office seeking comment.
“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.
The case is SEC v. Tourre, 10-03229, U.S. District Court, Southern District of New York (Manhattan).
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