The U.S. Court of Appeals for the Second Circuit concluded that US criminal securities law does not apply to foreign transactions. This means that a company’s activities outside the US may not need to comply with US securities law.
In this striking decision published in August 2013, the Federal Court determined that Section 10(b) of the Security Exchange Act 1934 is not applicable to extraterritorial conduct. As a result, US criminal securities law may not apply to a company’s activities outside the US, making compliance with US securities law optional, but not obligatory.
In the civil case Morris v National Austria Bank (2010), the U.S. Supreme Court held that US criminal securities law does not apply to foreign conduct, basing its decision on a presumption against extraterritoriality. This presumption embodies the principle that legislation does not have an extraterritorial effect unless Congress specifically states otherwise. The ruling of the U.S. Court of Appeals makes it clear that this approach also applies to criminal cases. According to the Court, US criminal securities law is applicable if a transaction involves a security listed in the US or if the security was purchased or sold in the US. To date, it remains unclear whether fraudulent transactions performed abroad are potentially relevant for the sentencing of domestic violations of US securities law.