By Grant McCool
NEW YORK, Feb 14 (Reuters) - A top U.S. regulator tried to do 'an end run' around U.S. Supreme Court precedent by pressing a civil fraud complaint against a Goldman Sachs Group Inc executive, the man's lawyer said in court on Monday.
But the U.S. Securities and Exchange Commission countered that the executive, Fabrice Tourre, could not avail himself of a June ruling by the high court that limited lawsuits governing securities transactions outside the United States.
Last April, the SEC accused Goldman and Tourre of civil fraud for failing to tell investors that the Paulson & Co hedge fund helped choose and bet against securities underlying Abacus 2007-AC1, a financial product tied to subprime mortgages.
Goldman settled with the SEC last July for $550 million, without admitting wrongdoing, in one of the few regulatory actions concerning toxic derivatives.
Tourre was the only individual charged in the case and is fighting to have the case dismissed. U.S. District Judge Barbara Jones in New York reserved decision on the filed motions and Monday's oral arguments.
Tourre, a Goldman vice president who referred to himself as 'Fabulous Fab' in an email cited by the SEC in its charging document, sat in court listening to the lawyers.
The arguments swirled around June's Supreme Court ruling in Morrison v. National Australia Bank Ltd, in which the court decided that Australian shareholders who bought the bank's stock outside the United States could not raise securities fraud claims in U.S. courts.
Several judges have applied the Morrison ruling to bar U.S. lawsuits in other scenarios, including where the plaintiffs are not foreign investors.
Tourre's lawyers argued that because the Abacus transaction took place outside the United States, the Morrison ruling requires dismissal of the SEC case.
'The SEC is attempting to do an end run around Morrison,' Tourre's lawyer, Andrew Rhys Davies, told the judge.
But SEC lawyer Lorin Reisner countered that the Abacus transaction was 'initiated by the desk in New York while Fabrice Tourre was sitting at the desk in New York.'
Reisner said 'it couldn't be any clearer that Mr. Tourre in New York personally solicited offers to buy' into Abacus.
Tourre has argued that Abacus, known as a synthetic collateralized debt obligation, was not listed on any exchange and its sole investor was Germany's IKB Deutsche Industriebank AG, which invested overseas.
The SEC accuses Tourre of misleading ACA Management LLC, a third party with experience in analyzing credit risk in residential mortgage-backed securities, that Paulson's hedge fund was an equity investor.
'This was the last chance for Mr. Tourre and his Goldman Sachs colleagues to make profits from these kinds of transactions and they created illusions,' Reisner said.
Davies denied there had been any fraud, calling the regulator's charges 'extraordinarily flimsy.'
'It is utterly implausible that Mr. Tourre tried to make ACA believe Paulson was taking a long position,' Davies said.
In November, the Financial Industry Regulatory Authority fined Goldman $650,000 for being too slow to reveal that two employees, including Tourre, were facing government probes.
The case is SEC v Goldman Sachs & Co, U.S. District Court for the Southern District of New York, No. 10-3229.
(Additional reporting by Jonathan Stempel and Basil Katz, editing by Matthew Lewis, Gary Hill) Keywords: GOLDMAN SEC/TOURRE (grant.mccool@thomsonreuters.com; + 1 212-393-9461; Reuters Messaging: grant.mccool.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
NEW YORK, Feb 14 (Reuters) - A top U.S. regulator tried to do 'an end run' around U.S. Supreme Court precedent by pressing a civil fraud complaint against a Goldman Sachs Group Inc executive, the man's lawyer said in court on Monday.
But the U.S. Securities and Exchange Commission countered that the executive, Fabrice Tourre, could not avail himself of a June ruling by the high court that limited lawsuits governing securities transactions outside the United States.
Last April, the SEC accused Goldman and Tourre of civil fraud for failing to tell investors that the Paulson & Co hedge fund helped choose and bet against securities underlying Abacus 2007-AC1, a financial product tied to subprime mortgages.
Goldman settled with the SEC last July for $550 million, without admitting wrongdoing, in one of the few regulatory actions concerning toxic derivatives.
Tourre was the only individual charged in the case and is fighting to have the case dismissed. U.S. District Judge Barbara Jones in New York reserved decision on the filed motions and Monday's oral arguments.
Tourre, a Goldman vice president who referred to himself as 'Fabulous Fab' in an email cited by the SEC in its charging document, sat in court listening to the lawyers.
The arguments swirled around June's Supreme Court ruling in Morrison v. National Australia Bank Ltd, in which the court decided that Australian shareholders who bought the bank's stock outside the United States could not raise securities fraud claims in U.S. courts.
Several judges have applied the Morrison ruling to bar U.S. lawsuits in other scenarios, including where the plaintiffs are not foreign investors.
Tourre's lawyers argued that because the Abacus transaction took place outside the United States, the Morrison ruling requires dismissal of the SEC case.
'The SEC is attempting to do an end run around Morrison,' Tourre's lawyer, Andrew Rhys Davies, told the judge.
But SEC lawyer Lorin Reisner countered that the Abacus transaction was 'initiated by the desk in New York while Fabrice Tourre was sitting at the desk in New York.'
Reisner said 'it couldn't be any clearer that Mr. Tourre in New York personally solicited offers to buy' into Abacus.
Tourre has argued that Abacus, known as a synthetic collateralized debt obligation, was not listed on any exchange and its sole investor was Germany's IKB Deutsche Industriebank AG, which invested overseas.
The SEC accuses Tourre of misleading ACA Management LLC, a third party with experience in analyzing credit risk in residential mortgage-backed securities, that Paulson's hedge fund was an equity investor.
'This was the last chance for Mr. Tourre and his Goldman Sachs colleagues to make profits from these kinds of transactions and they created illusions,' Reisner said.
Davies denied there had been any fraud, calling the regulator's charges 'extraordinarily flimsy.'
'It is utterly implausible that Mr. Tourre tried to make ACA believe Paulson was taking a long position,' Davies said.
In November, the Financial Industry Regulatory Authority fined Goldman $650,000 for being too slow to reveal that two employees, including Tourre, were facing government probes.
The case is SEC v Goldman Sachs & Co, U.S. District Court for the Southern District of New York, No. 10-3229.
(Additional reporting by Jonathan Stempel and Basil Katz, editing by Matthew Lewis, Gary Hill) Keywords: GOLDMAN SEC/TOURRE (grant.mccool@thomsonreuters.com; + 1 212-393-9461; Reuters Messaging: grant.mccool.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.