10/01/2010 08:48 am ET | Updated May 25, 2011

Obscure Dodd-Frank Provision Could Spell Trouble For Goldman's Fabrice Tourre

Accused of helping Goldman Sachs commit securities fraud, but left off the firm's $550 million settlement with the SEC, the "fabulous Fab" might be off the hook.

Fabrice Tourre's lawyer told a judge Wednesday that a Manhattan federal court must dismiss the SEC's case against him because the transaction at issue occurred outside the United States, reported the Wall Street Journal.

The SEC's suit against Tourre alleges the Goldman Sachs bond trader helped the firm market a portfolio of collateralized debt obligations to a German bank. Goldman misled the bank by not disclosing that an American hedge fund, Paulson & Co., structured and then bet against the financial instrument, the SEC says.

In seeking a dismissal on Wednesday, Tourre's lawyer, Pamela Chepiga, cited a controversial Supreme Court ruling passed down in June that essentially strips U.S. courts of their ability to go after securities fraud that occurs overseas.

Because the financial instruments Tourre marketed to investors were not listed on a U.S. exchange and because the alleged victim was a foreign bank, the transaction is not subject to United States law, Chepiga said in the court filing.

But the behind-the-scenes meetings between Tourre and Paulson took place in Paulson's U.S. offices, according to the SEC's complaint. Goldman Sachs, which paid Tourre to put the deal together and made money off the transaction, is based in the United States. So shouldn't the claims be under the jurisdiction of a U.S regulator?

The SEC will likely pursue that argument in its reply brief, says Andrei Rado, a lawyer at Milberg LLP. He told The Huffington Post that he expects the agency to cite a provision in the recently passed Dodd-Frank bill which gives "U.S. courts jurisdiction over a foreign transaction if it involved conduct in the United States that furthered the violation or had a foreseeable effect within the United States."

The provision is vague. But if the SEC can show that their complaint includes evidence of conduct within the United States that contributed to Tourre's fraud, the Manhattan federal court might not dismiss the case. If they cannot, the fabulous French financier may get off scott-free.