SEC fails to revive fraud claim vs. Goldman's Tourre

Mon Nov 19, 2012 5:21pm EST

* SEC had brought fraud claim over IKB note sale

* Goldman paid $550 mln to settle with SEC

By Jonathan Stempel

NEW YORK, Nov 19 (Reuters) - The U.S. Securities and Exchange Commission cannot revive a securities fraud claim against Goldman Sachs Group Inc bond trader Fabrice Tourre over the sale of complex securities linked to subprime mortgages, a federal judge ruled on Monday.

U.S. District Judge Katherine Forrest in Manhattan, who took over the case from her colleague Barbara Jones last month, rejected the SEC's argument that a recent court decision made a $150 million note sale to Germany's IKB Deutsche Industriebank AG sufficiently "domestic" to give her jurisdiction.

Monday's decision does not affect the rest of the SEC's lawsuit against Tourre, which arose from charges filed against him and Goldman in April 2010.

The SEC had accused them of defrauding investors in the Abacus 2007-AC1 collateralized debt obligation by not revealing that a hedge fund run by billionaire John Paulson had helped choose and then bet against the underlying securities.

Goldman later settled for $550 million without admitting or denying wrongdoing, and placed Tourre on paid leave.

Tourre did not settle, and Jones in June 2011 let the SEC pursue part of its case against him. But she dismissed a claim over IKB's losses on Abacus notes it bought for two investment vehicles known as Loreley Financing.

In its appeal, the SEC said that because title to the notes was transferred in the United States, and the transfer was "in connection with" the fraudulent note sale, its fraud claim could be heard in federal court under a March 2012 decision by the 2nd U.S. Circuit Court of Appeals in New York.

Forrest disagreed, calling the link too "attenuated."

"Because the Abacus Trustee-to-Goldman transfer of title is, as admitted by all parties, the only domestic transaction that occurred, and because the fraud was perpetrated upon IKB/Loreley - not on Goldman, there is no fraudulent U.S.-based transfer of title 'in connection with' the IKB note purchase," she wrote.

SEC spokeswoman Christina D'Amico declined to comment. Pamela Chepiga, a lawyer for Tourre, did not immediately respond to a request for comment.

Tourre was the only individual charged in the Goldman case. Last week the SEC dropped its case against Edward Steffelin, the only individual charged in its separate CDO fraud litigation involving JPMorgan Chase & Co.

The case is SEC v. Tourre, U.S. District Court, Southern District of New York, No. 10-03229.

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