Tourre's Reply Memorandum of Law

Case 1:10-cv-03229-KBF Document 252 Filed 04/12/13 Page 1 of 14 

UNITED STATES DISTRICT COURT 

SOUTHERN DISTRICT OF NEW YORK 

SECURITIES AND EXCHANGE 

COMMISSION, 

v. 

FABRICE TOURRE, 

Plaintiff, 

Defendant. 

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Civil Action 

No.: 10-cv-3229 (KBF) 

ELECTRONICALLY FILED 

REPLY MEMORANDUM OF LAW OF FABRICE TOURRE IN FURTHER SUPPORT 

OF HIS MOTION TO PRECLUDE THE SEC’S RELIANCE ON THE JANUARY 17 

CALL AND TO STRIKE THE JANUARY 17 CALL AND RELATED EXHIBITS 

Pamela Rogers Chepiga 

David C. Esseks 

Andrew Rhys Davies 

Brandon D. O’Neil 

ALLEN & OVERY LLP 

1221 Avenue of the Americas 

New York, New York 10020 

(212) 610-6300 

Dated: April 12, 2013 

New York, New York 

Attorneys for Fabrice Tourre


TABLE OF CONTENTS 

Page 

SYNOPSIS.......................................................................................................................................1 

STANDARD OF REVIEW .............................................................................................................2 

ARGUMENT...................................................................................................................................2 

I. THE SEC HAS PROVIDED NO JUSTIFICATION FOR ITS FAILURE TO 

DISCLOSE THE EXISTENCE OF THE ACA AUDIO FILES.........................................2 

II. 

III. 

INTRODUCTION OF THE JANUARY 17 CALL WILL RESULT IN 

PREJUDICE TO MR. TOURRE THAT CANNOT BE REMEDIED................................7 

THE JANUARY 17 CALL IS IRRELEVANT AND INADMISSIBLE 

HEARSAY...........................................................................................................................9 

CONCLUSION..............................................................................................................................10 

i


TABLE OF AUTHORITIES 

CASES 

Am. Stock Exchange, LLC v. Mopex, Inc., 

215 F.R.D. 87 (S.D.N.Y. 2002)................................................................................................2 

Ebewo v. Martinez, 

309 F. Supp. 2d 600 (S.D.N.Y. 2004) ..................................................................................2, 8 

Gabelli v. SEC, 

No. 11-1274, 2013 WL 691002 (U.S. Feb. 27, 2013)..............................................................3 

Haas v. Delaware & Hudson Railway Co., 

282 F. App’x 84 (2d Cir. 2008)................................................................................................2 

Res. Funding Corp. v. DeGeorge Fin. Corp., 

306 F.3d 99 (2d Cir. 2002) ...................................................................................................3, 8 

SEC v. Collins & Aikman Corp., 

256 F.R.D. 403 (S.D.N.Y. 2009)..............................................................................................3 

United States v. Bank of New England, N.A., 

821 F.2d 844 (1st Cir. 1987) ....................................................................................................4 

Zubalake v. UBS Warburg LLC, 

229 F.R.D. 422 (S.D.N.Y. 2004)..........................................................................................3, 5 

STATUTES 

Fed. R. Civ. P. 11.............................................................................................................................5 

Fed. R. Civ. P. 37(c)(1)....................................................................................................................2 

Fed. R. Evid. 801(c)...................................................................................................................9, 10 

Fed. R. Evid. 802 .......................................................................................................................9, 10 

ii


Defendant Fabrice Tourre respectfully submits this reply memorandum of law, 

together with the supporting declaration of Pamela Rogers Chepiga (the “Chepiga Declaration”), 

in support of his motion to preclude the SEC from introducing into evidence on summary 

judgment or at trial the January 17 Call 1 from ACA and to strike the January 17 Call, Exhibits 13 

and 14 and related references from the SEC’s pending motion for partial summary judgment. 

SYNOPSIS 

On the eve of trial, and after three years of extensive fact and expert discovery, 

the SEC now seeks to introduce a single, cherry-picked audio file of a conversation that took 

place over six years ago, that was never produced in this litigation. The SEC provides no 

justification for its failure to produce this lone audio file, let alone its failure to disclose the 

existence of tens of thousands of other potentially relevant calls. Most tellingly, despite 

premising its complaint against Mr. Tourre on an alleged phone call between Mr. Tourre and 

Laura Schwartz of ACA on January 12, 2007, the SEC has stunningly made no effort to 

determine whether this call was ever even made and, if so, what the content of the call was. It is 

thus more than ironic that the SEC now seeks to champion itself as a seeker of the truth, when it 

failed to conduct its investigation and this litigation with the due care mandated of any civil 

litigant, much less a government regulatory agency. These failings have resulted in the filing of 

an action so fundamentally flawed that the SEC now seeks to rely on a single audio file of a 

January 17, 2007 call between Gail Kreitman of Goldman and Lucas Westreich of ACA, on 

which Mr. Tourre does not even appear and which is not even referenced in the Amended 

Complaint. Indeed, had the SEC, as a regulatory agency, performed a competent investigation in 

the first place, the case may never have been brought against Mr. Tourre. The SEC chose not to 

1 

Mr. Tourre hereby adopts the abbreviations from his opening memorandum of law dated March 15, 

2013.


obtain audio files from ACA, despite having knowledge of their existence since October of 2008, 

and chose not to seek to re-open discovery in this action to allow for the introduction of 

additional evidence. It may not now unilaterally alter the landscape of discovery to the direct 

prejudice of Mr. Tourre. 

STANDARD OF REVIEW 

Under Rule 37(c)(1) of the Federal Rules of Civil Procedure, a party that “fails to 

provide information … as required by Rule 26(a)” is “not allowed to use that information … to 

supply evidence on a motion, at a hearing, or at a trial, unless the failure was substantially 

justified or is harmless.” Fed. R. Civ. P. 37(c)(1). Contrary to the SEC’s assertions, a showing 

of bad faith is not required, and the “burden to prove substantial justification or harmlessness 

rests with the dilatory party.” Am. Stock Exchange, LLC v. Mopex, Inc., 215 F.R.D. 87, 93 

(S.D.N.Y. 2002) (citations omitted); see also Haas v. Delaware & Hudson Railway Co., 282 F. 

App’x 84, 86 (2d Cir. 2008) (holding that “a bad-faith violation of … Rule 26 is not required in 

order to exclude evidence”) (internal citations and emphasis omitted). The purpose of the Rule is 

to “prevent the practice of ‘sandbagging’ an opposing party with new evidence.” See Ebewo v. 

Martinez, 309 F. Supp. 2d 600, 607 (S.D.N.Y. 2004) (citations omitted) 

ARGUMENT 

I. THE SEC HAS PROVIDED NO JUSTIFICATION FOR ITS FAILURE TO 

DISCLOSE THE EXISTENCE OF THE ACA AUDIO FILES 

The SEC concedes, as it must, that it had knowledge of the existence of ACA 

audio files since at least October of 2008 when ACA produced the October 2008 Telephone Log, 

titled “Inventory of Telephonic Recordings,” which lists ACA calls for the year 2007 and spans 

almost 1,500 pages in length. See SEC Opp. Mem. at 4. Indeed, the SEC further reveals for the 

first time that the October 2008 Telephone Log was reproduced again to the SEC at an 

2


undisclosed date in 2011. See Calamari Decl. 6. And yet, the SEC never disclosed the 

existence of these audio files or the October 2008 Telephone Log to Mr. Tourre, not in 

connection with the SEC’s Rule 26(a) disclosure obligations, and not in response to Mr. Tourre’s 

document requests to the SEC. Far from establishing a substantial justification for its failure to 

produce the October 2008 Telephone Log and disclose the existence of the ACA audio files, the 

SEC papers submitted in opposition to Mr. Tourre’s motion reveal a pervasive failure by the 

SEC to conduct its investigation or this litigation with the diligence mandated of any civil litigant, 

much less a government regulatory agency with the authority to impose civil penalties and label 

defendants as wrongdoers. See Gabelli v. SEC, No. 11-1274, 2013 WL 691002, at *7 (U.S. Feb. 

27, 2013). 

The SEC’s only proffered justification is that its left hand did not know what its 

right hand was doing, that its lawyers in Washington, D.C. working on the ABACUS 2007-AC1 

investigation are somehow absolved of any responsibility for producing relevant documents in 

the possession of its New York office. This argument is legally and factually without support. 

As an initial matter, the SEC may not avoid its discovery obligations by attempting to segregate 

the knowledge of its various offices and employees. To the contrary, like “any ordinary litigant, 

the Government must abide by the Federal Rules of Civil Procedure” and “is not entitled to 

special consideration concerning the scope of discovery, especially when it voluntarily initiates 

an action.” SEC v. Collins & Aikman Corp., 256 F.R.D. 403, 414 (S.D.N.Y. 2009). See also 

Zubalake v. UBS Warburg LLC, 229 F.R.D. 422, 439 (S.D.N.Y. 2004) (holding that litigants are 

obligated to produce all relevant electronic evidence in their possession, custody and control); 

Res. Funding Corp. v. DeGeorge Fin. Corp., 306 F.3d 99, 112 (2d Cir. 2002) (remanding and 

admonishing that “as a discovery deadline or trial date draws near, discovery conduct that might 

3


have been considered ‘merely’ discourteous at an earlier point in the litigation may well breach a 

party’s duties to its opponent and to the court”). Accord United States v. Bank of New England, 

N.A., 821 F.2d 844, 855 (1st Cir. 1987) (addressing the collective knowledge doctrine). 

Here, it is undisputed that the SEC attorneys charged with managing the 

ABACUS 2007-AC1 investigation had knowledge of the other two relevant CDO investigations 

conducted out of the New York office, and understood that those investigations related to ACA. 

See Kelly Decl. 7; Leasure Decl. 5; Lench Decl. 5. Moreover, the SEC attorneys charged 

with managing discovery in connection with this litigation had the ability to access documents 

and information from any SEC office in connection with any SEC investigation. Indeed, one of 

the investigative attorneys on the ABACUS 2007-AC1 investigation and counsel of record in 

this case, now concedes that, in response to Mr. Tourre’s document requests to the SEC, she 

“conducted some limited text searches of materials in [the New York office’s] investigation 

based on specific search terms” and produced documents to Mr. Tourre on the basis of these 

searches. See Kelly Decl. 13. 

It is inconceivable that a reasonable search would not have captured the October 

2008 Telephone Log, almost 1,500 pages in length and containing pages of recordings for key 

ACA witnesses from the parties’ Rule 26(a) disclosure lists, including Ms. Schwartz and Mr. 

Westreich. 2 

The SEC offers no explanation as to how it conducted its search, and no explanation 

as to how a properly designed search could possibly have missed the critically important October 

2008 Telephone Log. Nor does the SEC offer any explanation for its failure to satisfy its 

Zubalake obligation to ensure that it had obtained relevant documents from its various offices. 

2 

Although the SEC represents that the October 2008 Telephone Log does not include the January 17 

Call on the basis that there are no calls assigned to Mr. Westreich for January 17, 2007, the SEC fails 

to inform this Court that the Log has over 400 pages of calls assigned to an “Unassigned Terminal or 

Unidentified Agent,” including calls made on January 17, 2007. A revised log was subsequently 

produced and lists numerous calls for Mr. Westreich on January 17, 2007. 

4


See Zubalake, 229 F.R.D. at 431 (noting obligation to contact relevant employees to determine 

potential sources of information). Perhaps most shocking, however, is that the SEC apparently 

never conducted a search for responsive documents in determining its disclosure obligations 

pursuant to Rule 26. See Kelly Decl. 13 (explaining search conducted in response to Mr. 

Tourre’s document requests but providing no information about any due diligence performed in 

connection with the SEC’s Rule 26(a) disclosures). The SEC’s failure to produce the October 

2008 Telephone Log or disclose the existence of audio files thus cannot be excused. 

In addition, although the investigation that gave rise to the instant litigation was 

purportedly centered out of the SEC’s office in Washington, D.C., Andrew Calamari, Regional 

Director of the SEC’s New York Regional Office, which obtained the telephone log in October 

of 2008 and again in 2011, signed the Complaint on April 16, 2010 and the Amended Complaint 

on November 22, 2010. See SEC Opp. at 10. The SEC seeks to absolve Mr. Calamari, who has 

been counsel of record in this case since its inception and has received every court filing, of any 

responsibility for this litigation, stating that he has “done nothing in this case other than sign and 

file the Complaint and Amended Complaint,” but the Federal Rules of Civil Procedure provide 

no such loophole. See, e.g., Fed. R. Civ. P. 11. Similarly, although the SEC’s own press release 

presented Kenneth R. Lench and Reid A. Muoio, co-heads of the SEC’s Structured and New 

Products Unit, as members of its “national leadership team” charged with sharing their expertise 

with “all staff throughout the Enforcement Division conducting investigations,” the SEC now 

seeks to disclaim any responsibility of Messrs. Lench and Muoio, who are counsel of record in 

this case, for performing these very duties by supervising the CDO investigations in the New 

York office that received the telephone log in 2008 and again in 2011. See Chepiga Decl. Ex. S. 

5


Nor may the SEC justify its failure to comply with its discovery obligations by 

attempting to lay blame with ACA. The SEC concedes that the October 2008 Telephone Log 

was responsive to the SEC’s investigative request to ACA and should have been produced by 

ACA. See SEC Opp. Mem. at 15 n.9. And yet, by its own admission, in contrast to the Federal 

Rules of Civil Procedure and the Local Rules of this Court, the SEC’s requests to ACA for the 

production of documents did not define the terms “communications” or “documents” to include 

audio recordings. See SEC Opp. Mem. at 5 n.6. Moreover, despite having knowledge of the 

existence of ACA audio recordings, “the SEC investigative staff did not ask ACA about the 

existence of audio recordings.” See SEC Opp. Mem. at 5 n.6, 15 n.9. Simply put, the SEC chose 

not to seek audio recordings from ACA and failed to produce to Mr. Tourre the very document 

that would have revealed their existence. It may not now benefit from its decision to avoid its 

discovery obligations. 

In the absence of any justification for its conduct, the SEC attempts to insinuate 

that Mr. Tourre was obligated to uncover the SEC’s failings. See SEC Opp. Mem. 6-7. 

However, as this Court has aptly noted, “defense counsel obviously has no obligation[] to seek 

out … materials, including audio recordings, which could fall into the category which are 

unhelpful to it,” and the only potentially relevant inquiry was whether counsel for Mr. Tourre 

“knew about the January 17 call before the close of discovery[.]” See Chepiga Decl. Ex. T at 

5:21-24, 6:14-16 (Mar. 21, 2013 Transcript). As counsel for Mr. Tourre informed this Court, Mr. 

Tourre had no knowledge of the existence of the January 17 Call. See id. at 6:20-23. Indeed, the 

SEC’s only assertion is that Mr. Tourre declined to proceed with the production of telephone 

billing records, not audio files, and the very documents submitted by the SEC in support of this 

claim make clear that Mr. Tourre decided not to proceed with this request based on 

6


representations by counsel for ACA that ACA phone records did not allow a determination of 

“what local calls Laura Schwartz made or received” or “what local calls were made to or from 

ACA generally.” See Schultz Decl. Ex. 17. Had calls from Ms. Schwartz’s taped line been 

produced, it is self-evident that Mr. Tourre could have identified calls made or received by 

listening to the audio recordings. 

The failure to produce the audio files during discovery in this litigation can be 

attributed only to the SEC’s failure to comply with its obligations to disclose relevant documents 

and materials. The SEC represented on numerous occasions that it would produce all documents 

relating to ACA “that the SEC has in any way used or relied on in its investigation …, regardless 

of whether the SEC consider[ed] those documents to form part of the [ABACUS 2007-AC1] 

Investigation.” See Tourre Mem. at 2-3, Chepiga Decl. Exs. K (emphasis added); L (letter from 

the SEC dated September 17, 2010 stating that it was producing “all documents” that it 

“intend[ed] to use or rely on in this litigation, regardless of whether those documents were 

formally part of the ABACUS 2007-AC1 Investigation”) (emphasis added). And yet, despite the 

SEC’s clear representations and its ability, and obligation, to obtain any relevant documents from 

any investigation, the SEC failed to produce the October 2008 Telephone Log. See Kelly Decl. 

13. There is no justification for this failure and Rule 37 of the Federal Rules of Civil Procedure 

thus mandates that the SEC be precluded from reliance on the January 17 Call. 

II. 

INTRODUCTION OF THE JANUARY 17 CALL WILL RESULT IN PREJUDICE 

TO MR. TOURRE THAT CANNOT BE REMEDIED 

On the eve of trial, and some five years after the SEC began the investigation that 

gave rise to this litigation, the SEC’s only proposed remedy for its failure to disclose the 

existence of tens of thousands of potentially relevant audio recordings, is that Mr. Tourre should 

be granted leave to depose the two witnesses who appear on the single audio file cherry-picked 

7


by the SEC. See SEC Opp. at 12, 18. This purported remedy is plainly inadequate. Indeed, 

even a continuance of the trial would do nothing to mitigate the prejudice that would result to Mr. 

Tourre from introduction of the January 17 Call, as it would require not only the production and 

review of tens of thousands of audio files, but would also require this Court to re-open the 

depositions of most of the individuals already deposed in this litigation, as well as allow 

depositions of as yet unidentified individuals who have never been deposed in this litigation but 

who may appear on unproduced audio files. See Chepiga Decl. 7-8. Fact and expert 

discovery have closed, and summary judgment briefing has been completed, and Mr. Tourre’s 

entire discovery plan was premised on the universe of documents as it existed at the close of 

document discovery over two years ago on January 31, 2011. See id. If the SEC wanted to 

effect this fundamental shift of the discovery landscape, it should have moved to re-open 

discovery no later than August 2012 when it received the ACA audio files. See SEC Opp. at 7. 

Though Mr. Tourre would have opposed any such motion, having chosen not to seek relief from 

this Court, the SEC may not now “sandbag” Mr. Tourre on the eve of trial with the introduction 

of evidence not subject to discovery. See Ebewo v. Martinez, 309 F. Supp. 2d 600, 607 (S.D.N.Y. 

2004) (citations omitted); see also Res. Funding, 306 F.3d at 112 (admonishing that “as a … trial 

date draws near, discovery conduct that might have been considered ‘merely’ discourteous at an 

earlier point in the litigation may well breach a party’s duties to its opponent and to the court”). 

The SEC attempts to make much of Mr. Tourre’s purported failure to avail 

himself of the offers by the SEC to allow for the deposition testimony of Mr. Westreich and Ms. 

Kreitman and a purported offer by ACA to entertain “reasonable” requests for the production of 

additional audio files. As to ACA, counsel for ACA made clear that it would consider only 

narrowly-tailored requests for any additional productions. See Schultz Decl. Ex. 20. Regardless, 

8


even had ACA agreed to the production of tens of thousands of potentially relevant audio files, 

discovery in this matter had been closed for over two years and there was simply no reasonable 

manner by which the inherent prejudice to Mr. Tourre might have been remedied. 

Simply put, the SEC has failed to show a basis by which introduction of a single 

audio file will not result in inherent prejudice to Mr. Tourre and has offered no viable remedy to 

this prejudice, instead seeking to continue to limit the available record as to audio files to a single, 

cherry-picked file. Indeed, the SEC’s purported concern for the “truth-seeking function of the 

court” is particularly ironic given its failure to seek the truth during the course of its investigation. 

See SEC Opp. Mem. at 3, 12. For example, although the Complaint and Amended Complaint 

were premised on an alleged call between Mr. Tourre and Ms. Schwartz on January 12, 2007, the 

SEC has apparently made no effort, either during its investigation or during the course of this 

litigation, to find out the truth of whether this call ever even occurred and, if so, what the content 

of the call was. See ECF Nos. 1 (Complaint) at 48; 44 (Amended Complaint) at 49. Having 

chosen not to seek to re-open discovery, the SEC may not now unilaterally alter the landscape of 

discovery on the eve of trial. 

III. 

THE JANUARY 17 CALL IS IRRELEVANT AND INADMISSIBLE HEARSAY 

In addition to being precluded due to the SEC’s discovery failings, as an out of 

court statement that does not even reference Mr. Tourre, the January 17 Call is either irrelevant 

or inadmissible under the rule against hearsay. See Fed. R. Evid. 801(c), 802. 

To the extent that the SEC offers the January 17 call as proof that Ms. Kreitman 

made allegedly false statements to ACA, see SEC Opp. at 20, then these statements are irrelevant 

to establishing the liability of Mr. Tourre, who never appears on the audio file. However, to the 

extent the SEC offers the statements made by Ms. Kreitman on the January 17 Call as alleged 

9


proof that Mr. Tourre was the source of Ms. Kreitman’s statement, such statements are 

inadmissible hearsay. See Fed. R. Evid. 801(c), 802. Moreover, any claim that the audio file 

might serve to “refresh” Ms. Kreitman’s recollection is belied by Ms. Kreitman’s investigative 

testimony before the SEC in June 2009 at which time she testified that she had no recollection of 

having any conversations with Mr. Tourre about Paulson taking equity in the ABACUS 2007- 

AC1 transaction. See Tourre Mem. at 6-7; Chepiga Decl. Ex. Q. To now seek to reconstruct Ms. 

Kreitman’s recollection, over six years after the statements at issue and after she has previously 

testified to having no recollection of the events at issue, should not be countenanced. Notably, 

despite the fact that the January 17 Call was not produced in discovery and despite being on clear 

notice that Mr. Tourre would object to the introduction of the January 17 Call at summary 

judgment or at trial, see, e.g., Schultz Decl. Ex. 23, counsel for the SEC has tainted Ms. 

Kreitman’s testimony by playing the January 17 Call in an attempt to “refresh” her recollection 

outside of the bounds of discovery and applicable limitations. See ECF No. 194, Ex. 13. 

CONCLUSION 

For all the foregoing reasons, Fabrice Tourre respectfully requests that this Court 

preclude the SEC from relying on the January 17 Call on summary judgment or at trial and strike 

the January 17 Call, Exhibits 13 and 14 and related references from the SEC’s pending motion 

for partial summary judgment. 

10


Dated: April 12, 2013 

New York, New York 

Respectfully submitted, 

/s/ Pamela Rogers Chepiga 

Pamela Rogers Chepiga 

(pamela.chepiga@allenovery.com) 

David C. Esseks 

(david.esseks@allenovery.com) 

Andrew Rhys Davies 

(andrew.rhys.davies@allenovery.com) 

Brandon D. O’Neil 

(brandon.o’neil@allenovery.com) 

ALLEN & OVERY LLP 

1221 Avenue of the Americas 

New York, New York 10020 

(212) 610-6300 

Attorneys for Fabrice Tourre

Tourre's Reply Memorandum of Law

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