Thursday, June 6, 2013
Fabrice Tourre, the former VP in the structured products correlation desk at Goldman Sachs, lost his attempt to get the SEC charges against him dismissed based on Morrison v. National Australia Bank. The SEC is suing Tourre, as readers of this Blog surely know, for his role in the infamous ABACUS CDO that Goldman sold to investors. The SEC alleges various misstatements and omissions concerning the role of Paulson & Co., Inc. in structuring the CDO, i.e., Paulson helped to select the assets that would determine the CDO's value and also shorted over $1 billion of those assets through credit default swaps. The narrow question addressed in the court's June 4 opinion is whether the events that took place in the U.S. are sufficient to render any fraud that occurred actionable under SEA section 10(b) or SA section 17(a). Tourre moved for summary judgment on the SEC's 17(a) claims to the extent it alleged fraud in offers made to two specified foreign investors and unspecified domestic investors. The district court denied Tourre's motion for partial summary judgment, holding that, for claims of fraud "in the offer" of securities, SA 17(a) requires that the relevant offer of securities be made in the U.S. The court rejected Tourre's arguments that (1) if the sale is not domestic, neither the sale nor the offer is actionable under Morrison, and (2) an offer is actionable if and only if it is both domestic and ultimately unconsummated.
The district court based its analysis on the plain meaning of SA section 17(a). Because the Dodd-Frank Act effectively reversed Morrison in the context of SEC enforcement actions, the primary holdings of this opinion affect only pre-Dodd-Frank conduct. With respect to Tourre, it means that his trial is still scheduled to commence in about six weeks.