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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