Fabrice Toure's lawyers engaged in some wishful thinking yesterday.
Lawyers for the Goldman Sachs employee ensnared in the SEC's lawsuit over a CDO deal called "Abacus" filed a motion to have the case dismissed because the SEC failed to allege that the transaction took place in the United States.
But it won't fly. Instead, the court will almost certainly give the SEC time to amend its complaint against Fab Fab so that includes the allegation that the Abacus deal took place in the US.
The SEC is likely to claim that the purchase of the security took place in the US, since that's where Fab Fab was working when he sold the Abacaus CDO to foreign buyers.
Back in June, the Supreme Court ruled that anti-fraud provisions of US securities laws don't apply to foreign buyers of foreign securities on foreign exchanges. This was a dramatic change in the application of the laws. Earlier, courts had mainly considered the extent to which the allegedly fraudulent conduct at issue had occurred in the US. But in June the court created a bright line rule that says only securities sold or purchased in the US or on US exchanges are covered by US anti-fraud rules.
This complicates the SEC's case against Fab Fab. In the past, it could merely have shown that Fab Fab's alleged fraud took place in the US.
Now it actually has to show that the sale of the securities took place in the US, which is harder to do because the buyers were mostly foreign investors. But since Fab Fab was based in the New York City office of Goldman Sachs , it seems likely that the court will rule that sale took place in the US. To rule otherwise would deprive foreign buyers of the protections of US securities laws, which would undermine the US's position as one of the safer places in the world to invest.
That's a step we doubt the courts will take.
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