Domesticating a Foreign Transaction

On January 20th, the Third Circuit addressed whether the purchases and sales of securities issued by U.S. companies through U.S. market makers acting as intermediaries for foreign entities constitute “domestic transactions” under Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010).  Using off-shore brokerage accounts defendant manipulated the prices of four OTC stocks. On appeal, he sought to overturn his securities fraud convictions by arguing that they were improperly based on an extraterritorial application of U.S. law. Although the Third Circuit found that the OTC Bulletin Board and OTC Pink Sheets are not national exchanges under Morrison, it did find that defendant’s manipulative stock trades were “domestic transactions” under Morrison. A government witness testified that all of the manipulative trades were facilitated by U.S. market makers and at least some of the relevant transactions required the involvement of a purchaser or seller working with a market maker and committing to a transaction in the United States, incurring irrevocable liability in the United States, or passing title in the United States. The record also contained evidence of specific instances in which the stocks were bought or sold at defendant’s direction from entities located in the United States. The transactions were therefore “domestic” and the convictions were therefore affirmed. U.S. v. Georgiou.

Supreme Court Won’t Hear Merchants’ Challenge to Debit Card Swipe Fees Rule

On January 20th, the U.S. Supreme Court denied a petition for certiorari submitted by retailers who challenged the D.C. Circuit’s ruling upholding the Federal Reserve Board’s cap on debit card transaction fees. See NACS v. Board of Governors, 14-200 (S.Ct.). See also Reuters.

Securities Fraud Complaint Fails to Strike Gold

On January 16th, the Tenth Circuit affirmed the dismissal of a putative class action securities fraud complaint. Plaintiffs allege a gold mining company and certain of its officers made material misstatements concerning the company’s gold production statistics. The Tenth Circuit found that plaintiffs failed to allege particularized facts in addition to the alleged accounting violations sufficient to show fraudulent intent. It is plausible and prudent for an executive to investigate and confirm alleged discrepancies before disclosing them publicly. And plaintiffs’ bald statements concerning allegedly improper Section 302 Sarbanes-Oxley certifications at best describe negligence, not falsity. In Re: Gold Resource Corporation Securities Litigation.