Monday, February 28, 2011
The SEC recently asked for comments on its study on extraterritorial private rights of action, required by Dodd-Frank. As you may recall, the U.S. Supreme Court in Morrision v. NAB rejected the longstanding conduct-effects approach and instead held that “Section 10(b) reaches the use of a manipulative or deceptive device or contrivance only in connection with the purchase or sale of a security listed on an American stock exchange, and the purchase or sale of any other security in the United States.” In response to Morrison, Congress reinstated the conduct-effects test for government actions and directed the SEC to study whether private rights of action should similarly be restored.
A group of 42 law professors, spearheaded by Frank Partnoy (San Diego), filed comments. As the letter states:
We differ in our views of private rights of action: some of us have significant doubts about the efficacy of securities class actions, while others believe shareholder litigation rights should be strengthened. Nevertheless, as a group we believe reform efforts should be applied consistently and logically to both domestic and affected foreign issuers, and we therefore support extending the test set forth in Section 929P of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to private plaintiffs.
With the prospect of a merger of Deutsche Boerse and NYSE Euronext, the extraterritoriality of the federal securities laws is a timely and pressing issue. As the comment states:
Assuming that merger happens, there is the potential for most trades between U.S. buyers and sellers to occur offshore, likely in London. Even those of us who are deeply skeptical about extending U.S. securities law to its fullest reach agree that it would make little sense to apply the approach in Morrison to preclude application of the securities laws to those trades.
A number of comments have been filed, some of which support maintaining the distinction between private and government actions.