In Morrison v. National Australia Bank, the Supreme Court limited the extraterritorial scope of Section 10(b) of the Securities and Exchange Act of 1934 by holding that the antifraud provision only applies to domestically listed security transactions. 130 S. Ct. 2869, 2884 (2010).
Notwithstanding this decision, the Securities and Exchange Commission, pursuant to its rulemaking authority and Section 929Y of the Dodd-Frank Wall Street Reform and Consumer Protection Act, is seeking comment regarding whether the Exchange Act should be extended to cover transnational securities fraud. When the Dodd-Frank Act was signed into law less than a month after the Morrison decision, section 929P of the Dodd-Frank Act amended district court jurisdiction over actions brought under the Exchange Act by the Commission or the United States alleging violations of the antifraud provisions to include conduct that occurs outside of the United States. This grant of jurisdiction may be expanded even further, as section 929Y of the Dodd-Frank Act requires the Commission to seek public comment and conduct a study to determine whether federal jurisdiction extends to private rights of action – a result that would be inconsistent with the Supreme Court’s holding in Morrison.
Among others, the Commission requests comments on the following issues:
- The scope of such a private right of action, and whether it should be limited to extend just to institutional investors.
- What implications such a private right of action would have on international comity.
- The economic costs and benefits of extending a private right of action.
- Whether a narrower standard should be adopted.
- The circumstances, if any, under which a private plaintiff could pursue claims under the antifraud provisions of the Exchange Act where the purchase or sale of the security occurred outside the United States.
- Whether it makes a difference if the security was issued by a U.S. or non-U.S. company.
- Other factors should be considered.
Thus, notwithstanding the Morrison decision, it appears that transnational security fraud claims may be fair game after all. The SEC is accepting comments until February 18, 2011.
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