In 2010, the US Supreme Court in Morrison v. National Australia Bank established a new standard, a transactional test, for determining the extraterritorial application of Section 10(b), which replaced the prior conduct-and-effects test. Following the Morrison decision, Dodd-Frank Act Section 929P(b) provided US courts with jurisdiction in cases brought by the SEC or the US government that involved conduct within the United States that constitutes significant steps in furtherance of the violation, even if the securities transaction occurs outside the United States and involves only foreign investors or conduct occurring outside the United States that has a foreseeable substantial effect within the United States. It was not clear whether the Dodd-Frank Act had, in effect, overcome the limits set by Morrison.
The Tenth Circuit Court of Appeals court date considered this question in a recent case, SEC v. Scoville and Traffic Monsoon. The Tenth Circuit considered whether the SEC had authority to bring a civil enforcement action under the federal securities antifraud provisions in a securities transaction outside of the United States. The Court applied the conduct-and-effects test which took the view that was reinstated by the Dodd-Frank Act in order to allow an action brought by the SEC to proceed. However, private actions under the antifraud provisions would continue to be governed by the Morrison transactional test.
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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.
