Like Moths to a Flame? International Securities Litigation after Morrison: Correcting the Supreme Court’s 'Transactional Test'

41 Pages Posted: 23 Mar 2012 Last revised: 8 Aug 2012

See all articles by Marco Ventoruzzo

Marco Ventoruzzo

Pennsylvania State University, Penn State Law; Bocconi University - Department of Law

Date Written: March 22, 2012

Abstract

Because of the broad jurisdiction American courts have asserted in cases arising under the Securities Exchange Act of 1934, they have been called a Shangri-la for “foreign-cubed” class actions with little connection to the United States. Over the past forty years, the standards used by American courts to determine their jurisdiction in international securities disputes have evolved, culminating in the U.S. Supreme Court’s Morrison decision of 2010. The new transactional test promulgated in Morrison replaced all of its predecessor tests, from a test measuring whether the conduct in question took place in the United States to a test measuring whether the effects of the conduct were felt in the United States, to a combined conduct-effects test. This new transactional test is unsatisfactory, however, because depending on how it is interpreted, it is either too narrow to protect American investors as Congress intended in Section 10(b) of the Securities Exchange Act, or too broad to resolve the ambiguities that plagued the conduct-effects test. This Article proposes a new effects test that will resolve ambiguities, protect American investors, and refrain from asserting American judicial jurisdiction overseas contrary to principles of international comity. Though the effects test would not grant private parties a cause of action against violators operating in the United States but who exclusively defraud those overseas, Congress has already granted authority to federal agencies to pursue such bad actors. The effects test is also in accordance with principles of other important jurisdictions, such as the European Union, and could serve as a basis for an international agreement on jurisdiction in international securities cases.

Keywords: class actions, rule 10b-5, international jurisdiction, securities regulation

JEL Classification: K22

Suggested Citation

Ventoruzzo, Marco, Like Moths to a Flame? International Securities Litigation after Morrison: Correcting the Supreme Court’s 'Transactional Test' (March 22, 2012). Virginia Journal of International Law, Vol. 52, No. 2, p. 405, 2012; Bocconi Legal Studies Research Paper No. 2027530. Available at SSRN: https://ssrn.com/abstract=2027530

Marco Ventoruzzo (Contact Author)

Pennsylvania State University, Penn State Law ( email )

Lewis Katz Building
University Park, PA 16802
United States

HOME PAGE: https://law.psu.edu/faculty/ventoruzzo

Bocconi University - Department of Law ( email )

Via Roentgen, 1
Milan, 20136
Italy

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