In Morrison v. National Australia Bank, Ltd., 130 S.Ct. 869 (2010) the Supreme Court circumscribed the reach of Exchange Act Section 10(b), limiting it to the water’s edge. Unless the purchase or sale of the security is made within the United States, the all purpose antifraud provision does not apply to the transaction the High Court held. In reaching its conclusion the Court relied on a presumption against extraterritoriality and the plain language of the Section. The Court made it clear that no amount of on-shore conduct would pull the transaction within the ambit of the statute if the purchase or sale did not occur within the United States. Indeed, the Court rejected years of scholarship developed by the Second Circuit and followed by other Circuits which utilized such a facts and circumstances test to determine if the U.S. courts had extraterritorial jurisdiction to apply Section 10(b) to a foreign transaction.

Despite the clear ruling in Morrison, the SEC settled an insider trading and manipulation case which focused on the Hong Kong stock exchange. SEC v. Tiger Asia Management, LLC (D. N.J. Filed Dec. 12, 2012) is an action against the firm, a Delaware corporation based in New York City which is an unregistered investment adviser and investment manager to Tiger Asia Overseas Fund, Ltd; Tiger Asia Partners, LLC, also a New York City based unregistered investment adviser of Tiger Asia Fund; Sung Kook or Bill Hwank, a New Jersey resident who is the principal and portfolio manager of Tiger Asia Fund and Tiger Asia Overseas Fund; and Raymond Park, a resident of New York and head trader for the funds.

The complaint centers on two sets of transactions. First, it alleges that between December 2008 and January 2009 Tiger Asia participated in three private placements for the securities of two Chinese banks. In each instance the banking placement agents approached Mr. Park about participating in a private placement of bank shares. Mr. Park agreed in his New York office. As part of the arrangement he was brought in to the deal and “across the wall” which precluded trading in the shares of the bank.

After entering into the agreements Mr. Hwang “ordered Park to short sell the relevant stock on the Hong Kong Stock Exchange . . . in the days prior to each Chinese Bank Placement.” Mr. Park did not inform the placement agent in either instance that their agreement had been breached. As a result of the trading Tiger Asia had trading profits of about $16.2 million.

Second, the complaint focuses on attempted manipulation on the Hong Kong exchange. In four instances Tiger Asia attempted to manipulate the month-end closing prices of certain stocks listed on the Hong Kong Exchange. The stocks were among its largest short holdings. In each instance Tiger Asia placed trades which were intended to depress the price of the stock thereby increasing the value of its short position. Since Tiger Management was paid a fixed annual management fee equal to 1.5% of the value of the next assets of the fund, calculated at the end of the month, this action increased the fees by $496,000. The Commission’s complaint alleges violations of Exchange Act Section 10(b), Securities Act Section 17(a), and Advisers Act Sections 206(1), 206(2) and 206(4).

The defendants settled the action, consenting to the entry of permanent injunctions prohibiting future violations of the Sections cited in the complaint. In addition, defendants Hwang, Tiger Asia Management and Tiger Asia Partners will collectively pay disgorgement and prejudgment interest of $19,048,787. Each also agreed to pay a penalty of $8,294,348. Mr. Park agreed to pay $39,819 in disgorgement and prejudgment interest and a penalty of $34,897.

The U.S. Attorney’s Office for the District of New Jersey announced a parallel action against Tiger Asia Management. The disgorgement and prejudgment interest paid by defendants Hwang, Tiger Asia Management and Tiger Asia Partners will be paid to the criminal authorities.