Earlier this year, in Morrison v. National Australia Bank, 130 S. Ct. 2869 (2010), the U.S. Supreme Court found that investors could not bring so-called “F-Cubed” securities fraud actions, in which a foreign investor seeks to bring suit in U.S. courts based on allegations of fraud concerning securities issued by foreign companies and traded on foreign exchanges. Although the Securities Exchange Act of 1934 (the “1934 Act”) does not contain an express private right for F-Cubed securities fraud actions, several lower courts had previously found such a private right of action to be implied in the 1934 Act. The Morrison decision held that Section 10(b) of the 1934 Act had no such extraterritorial application and therefore only applied to “transactions in securities listed on domestic exchanges, and domestic transactions in other securities.” Shortly after Morrison, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) amended the 1934 Act to expressly allow the Department of Justice and the SEC to bring transnational securities fraud actions and directed the SEC to solicit comment and conduct a study concerning private rights of action in cases of transnational securities fraud.
Section 929P of the Dodd-Frank Act specifically allows for action brought or instituted by the SEC or the United States alleging a violation of the antifraud provisions of the 1934 Act involving (1) conduct within the U.S. that constitutes significant steps in furtherance of the violation, even if the securities transaction occurs outside the U.S. and involves only foreign investors; or (2) conduct occurring outside the U.S. that has a foreseeable substantial effect within the U.S. In addition seeking public comment on this question, Section 929Y(a) directs the SEC to solicit comment on whether the scope of the 1934 Act should be extended to provide for private rights of action to the same extent as those now provided to the Commission in Section 929P, or to some other extent.
Pursuant to Section 929Y(a), the SEC has recently issued a request for public comment on a variety of issues concerning the potential for allowing F-Cubed securities fraud actions. These topics on which the SEC has sought comment include, but are not limited to, (1) the costs and benefits of such actions, (2) alternative remedies available to investors outside of the United States, and (3) the implications of private transnational securities fraud actions for international comity and international relations. Comments are due no later than February 18, 2011. The SEC must subsequently prepare a study on this matter and submit it to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House not later than January 21, 2012.