conduct and effects test

utahPrior to the U.S. Supreme Court’s June 2010 decision in Morrison v. National Australia Bank, U.S. courts held that the U.S. securities laws could be applied extraterritorially if there was sufficient fraudulent conduct or were sufficient effects from that conduct in the U.S.  In Morrison the Supreme Court rejected this “conduct or effects” test, ruling that the U.S. securities laws apply to allegedly fraudulent transactions, not to alleged fraudulent conduct or its effects, and further that the securities laws apply only to domestic transactions. However, within days after the Morrison decision, the U.S. Congress, as part of its enactment of the Dodd-Frank Act, purported to provide the SEC and the U.S. DOJ “jurisdiction” to pursue enforcement actions based not on transactions in the U.S., but rather based on conduct or its effects in the U.S.

Despite the passage of time, no court reached the question of how to interpret and apply this Dodd-Frank provision in light of the Morrison decision – until now. In a detailed March 28, 2017 decision (here), District of Utah Judge Jill N. Parrish held, notwithstanding Morrison and in reliance on the Dodd-Frank Act provision, that the SEC may bring an enforcement action based on transactions outside the U.S. and involving non-U.S. residents if there was sufficient conduct in the U.S. The ruling potentially has important implications for U.S. regulatory authorities’ reach for securities enforcement actions involving foreign actors or non-U.S. transactions.
Continue Reading U.S. Securities Enforcement Authorities’ Extraterritorial Reach Under Morrison, Dodd-Frank Act