Morrison v. National Australia Bank and the Future of Extraterritorial Application of the U.S. Securities Laws
36 Pages Posted: 3 Mar 2011 Last revised: 19 Mar 2011
Date Written: February 28, 2011
In recent years securities markets have become increasingly interconnected, and securities fraud frequently crosses borders. The United States’ well-developed private enforcement mechanism for securities fraud is very attractive to investors around the world who are harmed by transnational securities fraud. However, the Supreme Court’s recent decision in Morrison v. National Australia Bank, in overturning nearly fifty years of federal court jurisprudence, severely limits the ability of investors to rely on the U.S. securities laws to protect them when the relevant fraud has a significant overseas component. Replacing the Second Circuit’s long-standing conduct and effects tests for determining the extraterritorial reach of the securities laws, the Supreme Court articulated a new transactional test for when the laws apply. This Article analyzes the Supreme Court’s opinion and its implications for the regulation of transnational securities fraud. It also examines certain provisions of the Dodd-Frank Act which attempted to overturn the Supreme Court’s decision as it applies to securities fraud enforcement actions brought by the Securities and Exchange Commission. Ultimately, this Article argues that the Morrison decision significantly curtails the extraterritorial application of the securities laws, which may harm investor confidence, at least in the short term. However, it also has the potential to encourage greater international cooperation in regulating transnational securities fraud, as well as catalyzing regulatory reform in other countries.
Keywords: Securities and Exchange Commission, Dodd Frank, Wall Street, Securities Fraud, Securities Fraud Enforcement, Extraterritorial Reach of Securities Laws
JEL Classification: K19
Suggested Citation: Suggested Citation