Settling an open issue in the wake of the United States Supreme Court's 2010 decision in (130 S. Ct. 2869), the Second Circuit recently held that Section 10(b) of the Securities Exchange Act of 1934 and its implementing regulation, Rule 10b-5, do not apply to conduct outside of the United States, "regardless of whether liability is sought criminally or civilly." Specifically, the court noted that a defendant may be convicted of securities fraud under Section 10(b) only if he or she has "engaged in fraud in connection with (1) a security listed on a U.S. exchange, or (2) a security purchased or sold in the United States."

At trial in the Southern District of New York, a jury convicted Defendants-Appellants, two former prominent investment managers, of violating a number of federal securities laws, among other criminal violations. Defendants-Appellants were sentenced to prison and ordered to pay approximately $35 million in restitution and to forfeit more than $54 million. On appeal, Defendants-Appellants cited the U.S. Supreme Court's holding in Morrison, which limited civil liability under the federal securities laws to conduct involving domestic transactions and/or securities listed on domestic exchanges. Defendants-Appellants argued, among other things, that the conduct underlying their conviction was extraterritorial, and did not, therefore, give rise to criminal liability under Section 10(b) or Rule 10b-5. In response, the Government argued that the Morrison holding should only apply to civil cases and that Defendants-Appellants could not use Morrison to shield themselves from criminal liability. The Second Circuit rejected the Government's argument, noting that, absent certain circumstances (such as a clear statutory indication of extraterritorial application or situations involving the "right of the government to defend itself"), there is a general and commonsense presumption that U.S. criminal laws, including Section 10(b) of the Exchange Act, do not apply extraterritorially. (The Second Circuit ultimately affirmed Defendants'-Appellants' convictions on the grounds that their fraudulent conduct was, in fact, domestic in nature.)

United States v. Vilar, 10-521-CR L, 2013 WL 4608948 (2d Cir. Aug. 30, 2013)