The Second Circuit weighed in this month that the Supreme Court's presumption against the extraterritorial application of the federal securities laws, as announced in Morrison v. National Australia Bank Ltd. cannot be used to toss state law common law claims, even if they arise in connection with an allegedly fraudulent initial coin offering or "ICO." Barron v. Helbiz, No. 21-278, 2021 WL 4519887 (2d Cir. Oct. 4, 2021). Helbiz presented the Second Circuit with a unique opportunity to consider the apparently sua sponte application of Morrison by Judge Louis Stanton of the U.S. District Court of the Southern District of New York to dismiss common law claims that sounded in fraud. The plaintiffs in Helbiz claimed they were deceived into purchasing cryptocurrency as part of the company's "pump and dump" investment scheme, but did not allege violations of the federal securities laws. In a unanimous opinion, Judges Debra Ann Livingston, Denny Chin and William Nardini breathed life back into Helbiz, vacating the district court's judgment and allowing plaintiffs to amend their complaint to satisfy the jurisdictional requirements from Morrison by adding a claim under §10(b) of the Securities Exchange Act of 1934 (Exchange Act).

The Territorial Limits of Federal Securities Laws: 'Morrison' and Its Progeny. Section 10(b) of the Exchange Act applies to fraud "in connection with the purchase or sale" of a security. 15 U.S.C. §78j(b). Yet the face of the Exchange Act is unclear on whether it applies extraterritorially, an issue grappled with by the courts of appeals for decades after the act's passage. In 2010, the Supreme Court resolved the issue in the landmark Morrison case, where the court held that §10(b) of the Exchange Act permits claims brought by a plaintiff (1) transacting in "securities listed on domestic exchanges" or (2) entering into "domestic transactions in other securities." 561 U.S. 247, 267 (2010). Put another way, the Supreme Court concluded that the Exchange Act does not provide a cause of action to plaintiffs who sue in federal court in connection with a foreign securities transaction. See id. at 250.  Although Morrison dealt exclusively with the Exchange Act, courts promptly broadened its application. The Southern District of New York—as affirmed by the Second Circuit—held in In re Vivendi Universal, S.A., Sec. Litig., 842 F. Supp. 2d 522, 529 (S.D.N.Y. 2012), that Morrison should apply equally to the Exchange Act and the Securities Act of 1933 (the Securities Act). The Second Circuit further expanded on Morrison in Absolute Activist Value Master Fund Ltd. v. Ficeto, 677 F.3d 60, 66-67 (2d Cir. 2012), where the court interpreted the second Morrison prong, which permits securities claims relating to "domestic transactions in other securities," to mean transactions where "irrevocable liability is incurred or title passes within the United States." In other words, a "domestic transaction" under Morrison requires evidence that the plaintiff became bound to the deal and lost the right to revoke within the United States. See id. at 70.

At least one court has applied Morrison to consider whether to dismiss Exchange Act claims that allegedly arose from an ICO. See In re Tezos Sec. Litig., No. 17-CV-06779-RS, 2018 WL 4293341 (N.D. Cal. Aug. 7, 2018) (declining to dismiss action where ICO transaction occurred within the United States). What made the Helbiz appeal unique, however, is that the claims did not arise under either the Securities Act or Exchange Act; they were merely state common law claims dealing with a foreign security.