Our Case of the Day is SEC v. Tourre (S.D.N.Y. 2011). Fabrice Tourre was a key player in the Goldman Sachs CDO story. The allegation was that Goldman Sachs sold collateralized debt obligations to its clients and then bet that the CDOs would fall in price. For those interested in the underlying allegations, here is the seminal 2009 article from the New York Times, here is Mr. Tourre’s prepared testimony before the Senate Permanent Subcommittee on Investigations, here is a webcast of the hearing before the Subcommittee, and here is the SEC’s complaint against Mr. Tourre (Mr. Tourre has moved to dismiss the complaint for failure to state a claim on which relief can be granted).
In the case of the day, Mr. Tourre asked the Court to issue a letter of request for the production of documents from two German firms, IKB Deutsche Industriebank AG and IKB Credit Asset Management GmbH. He also asked the Court to order the SEC to request assistance in gathering the same documents from the German government under two memoranda of understanding between the two governments: a 1997 bilateral MOU and a 2002 multilateral MOU sponsored by the International Organization of Securities Commissions. The Court granted the first request but denied the second. While the Court’s consideration of the first request was cursory, it deserves the bulk of our scrutiny.
The SEC did not object to Mr. Tourre’s request for issuance of a letter of request, even though the SEC “suggest[ed] in passing that the document requests embodied in the letter are overbroad and, in part, seek irrelevant material” Magistrate Judge Dolinger’s view was that in the absence of an objection by the adverse party, as long as the letter of request was “not unreasonable on its face”, it was proper to grant the request even without undertaking “a close examination of the extent, if any, to which some of the requests might prove either excessive or at least marginal in terms of relevance.” He noted that the German authorities could simply refuse to execute the letter of request if they considered that it should not be executed under the Hague Evidence Convention. I question whether the judge was correct on this point. The Letter of Request is framed as a typical U.S. subpoena duces tecum might be framed: it seeks “all documents concerning any ABACUS transaction …”, “All documents concerning any communications between IKB and the SEC or any other government agency concerning ABACUS 2007-AC1”, and so forth. The Letter of Request seems therefore to run squarely up against Germany’s Article 23 declaration. In my experience, such a request is highly unlikely to be executed by the German authorities, but since personal experience of the blog proprietor is not really good citable authority, the reader may want to refer to Dick Loycke, Discovery in Germany, in Obtaining Discovery Abroad 127, 137-142 (2d ed. 2005), the ABA Section of Antitrust Law’s useful one-volume summary of procedures for obtaining discovery in various countries. It seems to me that in a case such as this, where there are serious reasons for concern that the letter of request is improper in light of the receiving state’s Article 23 declaration, and where the foreign target of the discovery is not a party to the U.S. proceeding and does not have an opportunity to object to the issuance of the letter of request, the court ought, for the sake of comity, to conduct a more searching analysis even if no U.S. party objects to issuance of the letter of request.
The court rejected the attempt to require the SEC to seek assistance from the German securities authorities under the two memoranda of understanding on the grounds that they were intended to “assist both governments in enforcing their respective securities laws,” not “as a mechanism for private litigants to obtain data that … would otherwise be denied them by the German authorities.” This point seems correct given the wording of the MOU, parts of which are quoted in full in the opinion.