Yesterday, the SEC asked Judge Barbara Jones to reinstate certain securities fraud claims against Goldman Sachs trader Fabrice Tourre relating to the sale of CDO notes to IKB, a German financing bank. Judge Jones dismissed these claims last June because the transaction was not a “domestic securities transaction” under the Supreme Court’s 2010 decision in Morrison v. National Australia Bank Limited, 130 S. Ct. 2869 (2010). It fell outside Section 10(b) of the Exchange Act. The SEC asserts in its motion that a recent Second Circuit case adopted a “broader” definition of “domestic securities transaction” than Judge Jones and that under that broader definition, the sale is a “domestic securities transaction” subject to U.S. law. According to the SEC, in Absolute Activist Master Fund Limited v. Ficeto, 672 F.3d 143 (2d Cir. 2012), the Second Circuit held that a transfer of title to securities within the United States is sufficient to satisfy the “domestic securities transaction” test. The SEC claims that the closing of the CDO transaction took place in New York and that title to the notes also transferred in New York. Based on the alleged transfer of title within the U.S., the SEC contends that it should be allowed to pursue its fraud claims against Tourre arising from the sale of the notes.
Continue Reading SEC Moves to Reinstate Fraud Claims Against Goldman Trader Fabrice Tourre

On Monday, Judge Scheindlin dismissed securities fraud claims brought by a putative class of investors in Optimal, an investment fund that invested 100% of its assets with Bernie Madoff and his firm. On March 6, Judge Scheindlin had issued an Order to Show Cause why the plaintiffs’ securities law claims should not be dismissed in light of the Second Circuit’s decision in <emAbsolute Activist Value Master Fund, Ltd. v. Ficeto, which clarified the scope of extraterritorial application of the Exchange Act after the Supreme Court’s decision in Morrison v. National Australia Bank. In briefing, the plaintiffs argued not that their investments in Optimal took place in the U.S., but instead that their purchases of shares in the fund were “‘in connection with the purchase or sale of a security listed on an American stock exchange’ –namely, Madoff’s purported trades on the New York Stock Exchange.” The plaintiffs sought to rely on the “broad interpretation generally given to the phrase ‘in connection with’” by courts.
Continue Reading Judge Scheindlin Throws Out Madoff-Related Securities Fraud Case Under Morrison

Yesterday, defendant Perry Gruss moved to certify for immediate appeal Judge Sweet’s recent ruling in SEC v. Gruss concerning the extraterritorial application of the Investment Advisers Act. In a case of first impression, Judge Sweet held that that the Supreme Court’s decision in Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010), did not bar SEC enforcement of Section 206 of the IAA even where the alleged fraud involved a foreign investor subject to a foreign securities regulatory regime. Judge Sweet concluded: “To bar the SEC, the government agency tasked with the job of regulating investment advisers from initiating an action against a domestic adviser because his actions defrauded a foreign investor would defeat the purposes of the IAA.” Judge Sweet’s ruling was the first to consider the implications of Morrison for IAA Section 206 enforcement actions. In Morrison, the Supreme Court held that Section 10(b) of the Securities Exchange Act of 1934 did not apply extraterritorially. In seeking certification, Gruss stated that whether Section 206 has extraterritorial reach is “an issue of first impression of national importance” because Section 206 is “one of the key antifraud provisions in the federal securities laws” and is “routinely relied on by the SEC to protect investment funds.” The Second Circuit’s early resolution of the issue therefore could affect “numerous on-going non-public SEC investigations as well as cases pending in district courts across the country.”
Continue Reading SEC Defendant Seeks Certification of Judge Sweet Ruling that Investment Advisers Act Can Be Applied Extraterritorially