Off-Shore Short Sales after Morrison: Will the Securities and Exchange Commission be Emboldened or Constrained?

Chapter Three, THE SHORT SELLING HANDBOOK, Elsevier Publishing, 2011

Posted: 4 Jun 2011 Last revised: 11 Apr 2012

Date Written: June 1, 2011


The casual channel surfer is often overtaken by generic (often meaningless) nightly news references to what has been dubbed the worst financial meltdown since the Great Depression. Segments typically include commentators positing as to the causes of the economic downturn and, in the process, singling out key participants – namely the dominant Wall Street banks. The conversation frequently turns to the inefficacy of the present regulatory framework, focused squarely on the Securities and Exchange Commission (SEC or Commission). However, the discussion becomes stale without an appreciation for the scope of powers granted to the SEC by congressional fiat through the securities act of 1934. To be sure, the particular challenges facing the current securities enforcement regime are tied directly to the extent of SEC adjudicatory authority. More importantly, recent securities enforcement developments have raised questions concerning SEC enforcement activities and general efforts to regulate the U.S. securities markets.

This chapter does not pretend to resolve the ongoing dispute over what is the appropriate role for the SEC in administering and enforcing the federal securities laws. Instead, it reflects on domestic enforcement in the face of increasing securities markets globalization. This trend invites the SEC to revisit its enforcement functions and reconsider its regulatory reach, especially in the shadow of Morrison v. National Australian Bank, the most recent and relevant word from the U.S. Supreme Court on the topic.

The pending litigation against Goldman executive Fabrice Tourre portends a changing focus of regulatory activity. As the Commission asserts a more prominent role in enforcement actions, it has also resisted some pushback effect from regulated entities. The ultimate outcome of the case against Tourre, therefore, is likely to inform future SEC enforcement strategy. Through an examination of the documents filed by the respective parties in the Tourre matter, this chapter addresses questions regarding the appropriate scope (and direction) of SEC enforcement activity. The discussion is threefold: the first part is devoted to a recitation of the relevant facts giving rise to the civil securities fraud action against Tourre; the second part analyzes the parties’ moving papers, together with the arguments made therein, guided in large measure by Morrison and its progeny; and the third part explores the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) in terms of extraterritorial application of federal securities laws.

Keywords: ABACUS 2007-AC1, Collateralized Debt Obligation, Credit Default Swap, Dodd–Frank Wall Street Reform, Consumer Protection Act, Morrison v. National Australian Bank Ltd., Residential Mortgage-Backed Securities, Securities and Exchange Commission, Securities and Exchange Commission v. Goldman Sachs

Suggested Citation

Pekarek, Edward and Cherkaoui, Soufiane, Off-Shore Short Sales after Morrison: Will the Securities and Exchange Commission be Emboldened or Constrained? (June 1, 2011). Chapter Three, THE SHORT SELLING HANDBOOK, Elsevier Publishing, 2011. Available at SSRN:

Edward Pekarek (Contact Author)

Pace Law School ( email )

80 North Broadway
White Plains, NY 10603
United States


Soufiane Cherkaoui

Fordham Law School ( email )

113 West 60th Street
New York, NY 10023
United States

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