Do the antifraud provisions of the U.S. Securities Laws apply to “foreign-cubed” securities actions? This is the question before the U.S. Supreme Court in Morrison v. National Australia Bank Ltd. on certiorari from the 2nd U.S. Circuit Court of Appeals.
A “foreign-cubed” securities action is a lawsuit brought in a U.S. federal court under the U.S. federal securities laws by a foreign purchaser against a foreign issuer based upon securities transactions occurring in a foreign country. While “[i]t is well recognized that the Securities Exchange Act is silent as to its extraterritorial application,” ( Itoba Ltd. v. LEP Group PLC) most courts have recognized that subject matter jurisdiction does exist in certain foreign-cubed actions. Two tests have emerged to determine whether jurisdiction exists: the “effects” test and the “conduct” test. The effects test considers “whether the wrongful conduct had a substantial effect in the United States or upon U.S. citizens,” as noted in SEC v. Berger. The conduct test, on the other hand, focuses “on the nature of conduct within the United States as it relates to carrying out the alleged fraudulent scheme,” as used in Psimenos v. E.F. Hutton & Co. Satisfaction of either test confers jurisdiction.
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