The Collapsing Jurisdictional Boundaries of the Antifraud Provisions of the U.S. Securities Laws: The Supreme Court and Congress Ready to Redress Forty Years of Ambiguity

Abstract

The antifraud provisions of the U.S. securities laws have remained silent as to their extraterritorial reach since their enactment in the early 1930’s. In the absence of clear Congressional guidance, U.S. courts have struggled to determine when and to what extent there should be subject matter jurisdiction over predominantly foreign claims. Each Circuit that has addressed the issue has adopted some version of the “conduct test” established by the Second Circuit, but no version of this test has been applied consistently or without implicating serious foreign policy concerns. For the first time since the enactment of the securities laws, the Supreme Court has granted certiorari to address this issue. This article addresses the infirmities contained in current versions of the conduct test and concludes that the conduct test should include a reliance requirement that cannot be satisfied through the application of the fraud-on-the-market theory.

Keywords: subject matter jurisdiction, foreign cubed, F-cubed, extraterritorial, conduct test, antifraud provisions, Morrison, NAB, National Australia Bank