The SEC lawsuit against a Goldman Sachs Group trader who sold collateralized debt obligations will proceed.  U.S. District Judge Barbara Jones in Manhattan said the SEC had met its burden for pursuing a claim that Fabrice Tourre, violated a securities law designed to prevent fraudulent sales of securities and should stand trial. Jones, in her decision yesterday, narrowed some of the other claims against Tourre.

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 the SEC reached a $550 million settlement with Goldman Sachs, it filed a new claim against Tourre, saying he gave the company “substantial assistance” as it misled investors.

“By virtue of alleging Tourre was principally responsible for Abacus and its marketing materials, the SEC sufficiently alleges Tourre violated” that law, Jones said.

Citing last year’s U.S. Supreme Court ruling in Morrison v. National Australia Bank, the judge threw out some claims involving Duesseldorf, 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 Abacus.

Claims Stand.   In Morrison, the high court ruled that U.S. securities laws don’t protect foreign investors who buy stocks on overseas exchanges.  Judge Jones let the case proceed on a claim against Tourre that he “knowingly, recklessly or negligently” made misrepresentations in the sale of securities to ACA Management LLC, IKB and ABN Amro.  Tourre had sought the dismissal of the entire suit, arguing that he couldn’t be held liable under U.S. securities law for foreign transactions that occurred outside the country. 

SEC response to Judge's decision:  “We are pleased with the court’s ruling and look forward to presenting our fraud charges against Mr. Tourre in court.”

Tourre's lawyer, Pamela Chepiga, said:  “We are pleased that Judge Jones has dismissed a substantial portion of the SEC’s case and confident we will prevail on the merits on the remaining allegations at trial.”

The case is SEC v. Tourre, 10-03229, U.S. District Court, Southern District of New York (Manhattan).   [Bloomberg, 6/11/11]

 

Goldman Sachs’s Tourre Must Face SEC Suit Over ‘Abacus’ Deal

June 11 (Bloomberg) --