Reuveni on Extraterritoriality of the Securities Laws

Extraterritoriality as Standing: A Standing Theory of the Extraterritorial Application of the Securities Laws, by Erez Reuveni, United States Second Circuit Court of Appeals, was recently posted on SSRN.  Here is the abstract:

This Article contends that the current treatment of the extraterritorial scope of the 1934 Securities and Exchange Act as a question of subject matter jurisdiction is wrong. Although the Act is silent as to its extraterritorial application, for over forty years courts have analyzed the Act’s extraterritorial scope as a question of subject matter jurisdiction, relying on the so-called “conduct” and “effects” tests. Because courts apply these tests in an ad hoc, case-by-case manner, they are inherently unpredictable and unnecessarily complicated. This state of affairs has become particularly troublesome in recent years, as so-called “foreign-cubed” securities fraud lawsuits - lawsuits filed by foreign plaintiffs against foreign defendants, alleging fraud in connection with the sale or purchase of shares in foreign markets - have proliferated in federal courts. This Article argues that contrary to current practice, the extraterritorial reach of Section 10(b) and Rule 10b-5 of the 1934 Act is really a question of statutory standing. Under the analysis developed here, the appropriate question for courts to ask is not whether they have jurisdiction over foreign claims, but whether Congress intended for the statutory scheme to provide a remedy to foreign plaintiffs. As this Article shows, only foreign investors who purchase or sell stock in the United States have standing to invoke the securities laws. This approach resolves the problems inherent in jurisdictional analysis and provides a simple, easily understood bright-line rule whose predictive value and procedural benefits ensure an optimal enforcement regime where American interests are affected by foreign fraud.