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.”