Claims for Fraudulent Conduct In Connection With Domestic Offers of Securities Are Actionable Under Section 17(a), Even if the Offer Resulted In an International Sale

The World in U.S. Courts: Summer 2013 - Securities Law Enforcement

Securities and Exchange Commission v. Tourre (U.S. District Court, S.D. N.Y., June 4, 2013)

A district court in New York held that the Securities and Exchange Commission established that a marketer of securities made domestic offers to sell securities that were allegedly fraudulent, even though the receipt of the offer and the sales of the securities occurred internationally.


The Securities and Exchange Commission (“SEC”) filed an action against defendant Fabrice Tourre, alleging that Tourre violated Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5, and Rule 17(a) of the Securities Act of 1933 in connection with the U.S.-based Tourre’s alleged offer and sale of synthetic collateralized debt obligations to U.S. and international investors. Tourre moved for summary judgment on the SEC's Section 17(a) claim, arguing that the SEC did not have jurisdiction over the alleged offers made to international investors because they were not U.S.-based. Conversely, the SEC moved for partial summary judgment on, among other things, the U.S. element of its Section 10(b) and Rule 10b-5 claims.


The court held that, under well-established precedent, a transaction is U.S.-based when title passes or irrevocable liability is incurred in the United States. The court further held that the SEC can state a claim under Section 17(a) if it alleges fraud in connection to a U.S. offer of securities, even if the offer resulted in a sale to international entities. In doing so, the court rejected Tourre’s argument that if a sale of securities is not U.S.-based, neither the sale nor the underlying offer is actionable under Section 17(a). The court also rejected Tourre’s argument that an offer is only U.S.-based if made to a person physically located in the United States. Instead, it held that an offer is domestic as long as it is made in the United States.

Based on its findings, the Court denied Tourre’s motion for partial summary judgment, finding that the record contained evidence showing that he engaged in fraudulent conduct in connection to an offer for securities made while he was located in the United States. Conversely, the court granted the SEC’s motion for partial summary judgment, finding that it established that the alleged fraud occurred in connection with transactions in which title passed or irrevocable liability incurred in the United States.

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