At this rate, anyone selling a complex financial instrument should just insist that buyers complete transactions outside of the borders of the United States. That way, no matter how badly sellers misrepresent the securities, they're protected by the impermeable heat shield the U.S. Supreme Court erected in Morrison v. National Australia Bank.

I don't mean to insinuate that Goldman Sachs's 2007 Timberwolf mortgage-linked collateralized debt offering was anything but a diligently and honestly-marketed CDO, even though some people, like Senator Carl Levin at the 2010 Senate hearings on the financial crisis, get all hung up on former Goldman mortgage executive Thomas Montag's description of the Timberwolf deal as "a sack of shit."

The folks who used to run Australia's Basis Yield Alpha Fund-until it collapsed under the crush of bad investments-are pretty well convinced that Goldman Sachs snookered them into spending about $81 million on Timberwolf credit default swaps in June 2007. In fact, BYAF said its downfall was the result of the $50 million it lost when Timberwolf cratered in 2008. The fund, represented by Baach Robinson & Lewis, sued Goldman Sachs for securities fraud in Manhattan federal court in June 2010. Boies, Schiller & Flexner, which Goldman engaged to defend the case, described BYAF's suit as a "billion dollar fraud action."

Did you happen to notice the date of BYAF's filing, though? June 2010 is the very month that the Supreme Court ruled in Morrison that U.S. securities laws don't apply to foreign-listed securities and foreign transactions. Boies Schiller asked Judge Barbara Jones to permit expedited briefing on whether Morrison restrictions ever apply to exotic securities such as credit default swaps. The firm submitted Goldman's Morrison brief in August.

"This case involves two credit default swaps between the plaintiff, a Cayman Islands mutual fund, and defendant Goldman Sachs International, a company organized under the laws of the United Kingdom," the brief says. The swaps and the underlying CDOs weren't listed on any U.S. exchange, Boies Schiller argued, and the swap agreements between BYAF and Goldman were executed in Australia, "so clearly, they are not 'domestic transactions'" under Morrison.

In BYAF's opposition brief, Baach Robinson argued that Goldman sold the Timberwolf swaps from New York. "Goldman constructed Timberwolf in New York, it organized and drafted the necessary documentation for the transactionin this city; it assembled the underlying Timberwolf collateral-U.S.-based mortgage backed securities-here; it developed and implemented its marketing plan here," the brief says. "It executed these swap sales on its New York trading desk; and both Goldman and BYAF performed their respective financial obligationsthrough Goldman accounts in Goldman's New York bank."

Alas for BYAF, none of its arguments satisfied Judge Jones, who ruled Thursday that under the transactional test the Supreme Court established in Morrison, BYAF hadn't shown that its Timberwolf credit default swap purchases were covered by U.S. credit laws. "Plaintiff fails to allege that any purchase or sale occurred in the United States," Judge Jones wrote.

If that language sounds familiar, it's because Judge Jones came to a very similar conclusion a month ago in the Securities and Exchange Commission's case against former Goldman securities trader Fabrice Tourre, who allegedly marketed another of Goldman's notorious synthetic CDOs, ABACUS. As I've reported, the judge dismissed SEC counts related to ABACUS purchases by IKB and ABN Amro because they're foreign companies that dealt with overseas Goldman entities and made purchases outside of the U.S. Nor is Judge Jones the first Manhattan federal judge to find that Morrison applies to swap deals: Judge John Koeltldismissed a pension fund's case against Swiss Re under similar reasoning last October.

Judge Jones said Baach Robinson has 30 days to amend BYAF's complaint to show that the Timberwolf transaction took place in New York, though it seems clear from the ruling that she wants to see money changing hands in the U.S.-not just the kind of U.S.-based conduct that was enough to establish jurisdiction until Morrison came along.

I left word with Bruce Grace of Baach Robinson but didn't hear back. Boies Schiller, which is better known on the left side of the v. but has come to be a regular Goldman counsel, declined comment.

(Reporting by Alison Frankel)