Financial Regulatory Forum

Fabrice Tourre dodged one bullet, at least

By Alison Frankel

The views expressed are her own.

It’s too bad for Fabrice Tourre, the former Goldman Sachs securities trader, that the portfolio manager on Goldman’s notorious ABACUS investment vehicle, isn’t a foreign company. If it were, Tourre might have entirely escaped Securities and Exchange Commission charges that he engaged in securities fraud in structuring and marketing the ABACUS synthetic collateralized debt obligation.

Under a June 10 ruling by Manhattan federal district court judge Barbara Jones, Tourre is off the hook for allegedly defrauding ABACUS investors IKB and ABN Amro because they’re foreign companies that dealt with overseas-based Goldman entities. So at least for those companies, Tourre’s actions fall outside the purview of U.S. courts under the U.S. Supreme Court’s 2010 Morrison v. National Australia Bank opinion. Here’s Judge Jones’s 41-page opinion—the first in which a federal district court judge has applied Morrison in an SEC enforcement case–and here’s the Reuters story on the ruling.

Tourre still has lots to worry about. In an odd, split-the-baby conclusion, Judge Jones drew a distinction between Goldman’s “offers” and “sales” of ABACUS securities, and ruled that, despite Morrison, the SEC can proceed with certain claims involving IKB and ABN Amro under the Exchange Act. Tourre’s lawyers at Allen & Overy will undoubtedly challenge Judge Jones’s novel interpretation on that point. More predictably, Judge Jones ruled that Morrison doesn’t apply to the SEC’s allegations that Tourre deceived the U.S.-based ACA Management, which served as the ABACUS portfolio selection agent, and ACA Capital, an investor, for failing to disclose that the hedge fund Paulson & Co., had been involved in picking the securities underlying ABACUS and was betting on the CDO to tank. Tourre’s lawyers have said they’re confident they’ll be able to defend those allegations.

The big question for other SEC defendants, though, is whether Tourre’s successful invocation of Morrison to knock out at least some of the SEC’s charges is a one-off event. That’s shaping up as a fascinating battle that’s going to pit Congressional intent against some supposedly bungled legislative drafting.

In July 2010, as Tourre’s lawyers were working on a motion to dismiss the SEC’s April complaint against their client based on the Supreme Court’s June 2010 Morrison ruling, Congress passed the Dodd-Frank Act, which contains provisions explicitly intended to undo Morrison’s restrictions on enforcement actions involving foreign securities transactions—exactly Tourre’s defense. Dodd-Frank adds a phrase to the 1933 and 1934 securities laws stating that “the district courts of the United States…shall have jurisdiction of an action or proceeding brought by or instituted by the [SEC] or the United States alleging a violation of the antifraud provisions.”

INSIGHT-Emails reveal Goldman’s Glengarry Glen Ross side

By Matthew Goldstein

NEW YORK, April 30 (Reuters) – Brass-knuckle sales tactics, worthless assets and clueless investors: the vignettes that emerge from hundreds of pages of three-year-old emails from members of Goldman Sachs Group’s mortgage securities trading desk would not be out of place in a David Mamet play.

In “Glengarry Glen Ross,” Mamet depicted the aggressive and desperate sales tactics employed by a group of salesmen to push worthless Florida real estate on unsuspecting buyers. The play helped popularize that age-old mantra of salesmen everywhere: “ABC or Always be Closing.”

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What are the odds on a three-legged horse?

Senators quizzing Goldman Sachs executives yesterday seemed at least as concerned about the wider ethical issues of investment banking as they did about the actual charges that the SEC has laid against Goldman, writes John Manley. (more…)

Goldman Sachs: Shareholder Revolt Spreads Where the SEC Has Yet to Tread

Where the SEC goes, plaintiffs’ lawyers are sure to follow. But in the case of Goldman Sachs, they’ve charged ahead straight into the C-suite, alleging far broader levels of misdeed than the SEC’s limited charges surrounding an individual transaction, writes Erik Krusch of Thomson Reuters Westlaw Business Currents. (Click here for further details.)  (more…)

Fabulous lessons from Fab

By John Manley

Three years ago, Goldman Sachs bond trader Fabrice Tourre, emailed his girlfriend Marine. Amid the amour and tendresse, “Fabulous Fab” expressed his misgivings about his job: he was conflicted about selling financial instruments that he thought were destined to fail.

Though Fab tried to rationalise his role as a small cog helping the huge engine of the capital markets operate more efficiently, he didn’t appear entirely convinced that this cleared him of any ethical responsibility.

“Anyway, not feeling too guilty about this,” Fab wrote to Marine in January 2007. “The real purpose of my job is to make capital markets more efficient and ultimately provide the U.S. consumer with more efficient ways to leverage and finance himself, so there is a humble, noble and ethical reason for my job ;) amazing how good I am in convincing myself !!!”

SEC may have hard time finding other suits like Goldman

By Matthew Goldstein

NEW YORK, April 19 (Reuters) The civil lawsuit filed by securities regulators against Goldman Sachs Group from the sale of a security linked to subprime mortgages may not open the floodgates for similar enforcement actions of its kind as some believe might happen.

In fact, the case lodged by the Securities and Exchange Commission against Goldman and a 31-year-old bond salesman may prove to be more rare than initially believed, a close reading of legal documents in the matter reveals.

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