Securities & Exchange Commission v. Goldman Sachs & Co.
2011 U.S. Dist. LEXIS 62487
| S.D.N.Y. | 2011Background
- SEC alleges Fabrice Tourre violated Section 17(a), and Sections 10(b) and 17(a) via ABACUS marketing and related CDSs.
- ABACUS was a synthetic CDO tied to subprime RMBS; Paulson allegedly shorted the reference portfolio.
- ACA and ABN participated as investors/guarantors; Paulson’s short position was allegedly undisclosed.
- SEC asserts Tourre and Goldman misrepresented ACA’s and others’ involvement and Paulson’s role to induce investments.
- Morrison v. National Australia Bank limited extraterritorial reach of Section 10(b); court evaluates domesticity of transactions.
- Court grants in part and denies in part Tourre’s motion to dismiss Amended Complaint, with several counts dismissed for lack of domesticity.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Morrison excludes extraterritorial reach for Section 10(b) claims | SEC argues transactions were domestically connected via U.S. conduct and closings. | Tourre argues transactions and parties were foreign; Morrison bars extraterritorial reach. | Counts limited to ACA; other foreign transactions dismissed. |
| Whether IKB/ABN transactions constitute domestic purchases or sales under Morrison | U.S.-based conduct ties to domestic transactions. | Trade confirmations show foreign counterparties; transactions abroad. | SEC fails to plead domestic transactions; 10(b) claims as to IKB/ABN dismissed. |
| Whether ACA Capital ABACUS transactions are domestic purchases or sales under Morrison | Marketing and communications domestic; transactions domestically relevant. | Lacking clear irrevocable US liability; Morrison controls. | ACA transactions satisfy 10(b)/10b-5 with adequate domesticity; claims not dismissed. |
| Whether Section 17(a) applies to offers/sales outside the United States | Section 17(a) applies to offers or sales domestically; Morrison’s focus on domestic transactions. | Extraterritorial application should be limited; Morrison applies to both acts of sale and offer. | Offers to IKB/ABN domestically actionable; sales to IKB/ABN dismissed; ACA remains actionable. |
| Whether SEC adequately pleads misrepresentations/omissions under Section 17(a) and 10(b) for ACA | Misrepresentations about Paulson’s equity/short position misled investors. | Duties and disclosures contested; Morrison limits extraterritorial reach. | SEC adequately pleads misrepresentation/omission for ACA; counts survive. |
Key Cases Cited
- Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010) (rejects conduct/effects tests; adopts transactional test for extraterritoriality)
- Acito v. IMCERA Group, Inc., 47 F.3d 47 (2d Cir.1995) (strong inference of fraudulent intent required under Rule 9(b))
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (facial plausibility required; not just conceivable)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility standard; governs pleading sufficiency)
- Caiola v. Citibank, N.A., 295 F.3d 312 (2d Cir.2002) (duty to disclose when speaking; omissions must be complete and accurate)
- Schoenbaum v. Firstbrook, 405 F.2d 200 (2d Cir.1968) (early extraterritorial/transactional focus in Section 10(b) cases)
- Leasco Data Processing Equip. Corp. v. Maxwell, 468 F.2d 1326 (2d Cir.1972) (extraterritorial reach and transaction-focused approach)
- S.E.C. v. National Securities, Inc., 393 U.S. 453 (1969) (statutory interpretation of purchase/sale, broad definitions)