The U.S. Securities and Exchange Commission won its jury trial against former Goldman Sachs & Co. trader Fabrice Tourre pretty handily in August. But the jurors did clear Tourre on one of the seven counts he faced: an allegation that he committed civil securities fraud through direct misstatements to investors. Now Tourre’s defense lawyers, Pamela Chepiga of Allen & Overy and solo practitioner John “Sean” Coffey, contend the SEC’s case should have unraveled on that single failed claim.
That’s the central argument in Tourre’s motion for judgment in his favor or a new trial, filed Monday in Manhattan federal court. The jury’s Aug. 1 findings for the SEC, wrote Chepiga and Coffey, “are so contrary to the weight of the evidence that it would work a manifest injustice to Mr. Tourre if they were permitted to stand.”
Tourre was tasked with rounding up investors for a Goldman-sponsored collateralized debt obligation known as ABACUS 2007-AC1. According to the SEC’s case, brought in 2010, Tourre failed to disclose that the hedge fund Paulson & Co. was helping structure the ABACUS CDO and shorting it at the same time. The SEC alleged multiple violations of U.S. securities laws, claiming both that Tourre schemed to make misstatements to investors and that he misled them directly.
After a two-week trial before U.S. District Judge Katherine Forrest in Manhattan, a jury found Tourre liable on six of seven counts. Three of those counts (Counts 1, 4, and 6) were premised on the theory that Tourre schemed to mislead a particular investor, ACA Capital Management. The jury also found that Tourre aided and abetted an alleged fraud by Goldman Sachs (Count 7). The jury refused, however to find Tourre liable Count 5—the SEC’s claim that he committed civil securities fraud through direct misstatements.
According to Monday’s motion for a retrial, the SEC repeatedly portrayed Tourre as the point person behind the purported scheme to mislead ACA. That’s a crucial fact, Chepiga and Coffey argue. Since the jury didn’t find that Tourre committed fraud through direct misstatements, his lawyers assert, the entire theory of scheme liability falls apart.
“Because the counts that accused Mr. Tourre of scheming to defraud ACA (Counts 1, 4, and 6) were explicitly premised on the existence of two of the very misstatements rejected by the jury in Count 5, those claims lack sufficient other evidence to survive scrutiny,” the defense lawyers wrote.
Tourre’s lawyers also argue that without a scheme to defraud ACA, there can’t be aiding and abetting liability. If they’re right, that knocks out Count 7, leaving just two remaining counts (2 and 3). Count 2 alleges a violation of §17(a)(2) of the Securities Act of 1933, which creates liability for negligently “obtain[ing] money or property by means of any untrue statement.” In hopes of vacating that count, Coffey and Chepiga argue the SEC failed to prove that Tourre gained any extra income from allegedly misleading investors.
“The motion has no merit and we look forward to filing our response,” SEC spokesman John Nester said in a statement.
Coffey and Chepiga will likely have a fresh face opposing their motion. The SEC announced Friday that the lead lawyer who tried the Tourre case, Matthew Martens, is resigning as the agency’s chief litigation counsel. Martens has been courted by several Am Law firms, as we explained when we named him Litigator of the Week for the trial victory.
Coffey declined to comment.
