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SEC Asks Whether Private Rights of Action Should Apply to Non-US Securities Transactions

SEC Asks Whether Private Rights of Action Should Apply to Non-US Securities Transactions

The SEC is seeking public comment on whether it should apply the broad “conduct and effects” test to private rights of action for securities fraud occurring outside the U.S. The Dodd-Frank Act broadened SEC jurisdiction to cases where U.S.-based conduct constitutes “significant steps in furtherance of the violation” (aka the “conducts test”) or where conduct occurring outside the U.S. has “a foreseeable effect within the United States” (aka the “effects test”). The Dodd-Frank Act requires the SEC to study whether the conduct and effects test should apply to private rights of action and report back to Congress. The conduct and effects test is broader than the one applied by the Supreme Court, which limited private rights of action to securities listed on U.S. exchanges or U.S. transactions in other securities. 


 OUR TAKE: In case you’re wondering how the SEC will report, in an amicas brief back in 2008, the SEC specifically argued to apply the conduct and effects test to extra-territorial private rights of action, arguing that the antifraud rules should “apply to transnational frauds that result exclusively or principally in overseas losses if the conduct in the United States is material to the fraud’s success and forms a substantial component of the fraudulent scheme.” The SEC argued that the courts should apply this materiality standard to ensure that the US does not become a “base for fraudulent activity.”