Kanjorski Says Act Rebuts
Court Decision on Extraterritoriality of Federal Securities Laws
According to Rep. Paul Kanjorski (D-PA), chair of the Capital
Markets Subcommittee, Section 929P of the Dodd-Frank Act authorizing
the SEC and the Justice Department to bring civil or criminal
enforcement actions involving transnational securities fraud is
intended to rebut the recently announced U.S. Supreme Court
presumption against the extraterritorial application of the federal
securities laws. In Morrison v. National Australia Bank (Doc.
No. 08-1191), the Court ruled in a private securities fraud action
that Section 10(b) of the 1934 Act applies only to transactions in
securities listed on U.S. exchanges and transactions in other
securities that occur in the U.S. The Court also said that it was
applying a presumption against extraterritoriality.
In floor comments on the day the House passed the
Dodd-Frank Act, Kanjorski said that the Act’s provisions concerning
extraterritoriality of the federal securities laws are intended to
rebut the presumption against extraterritoriality by clearly
indicating that Congress expects extraterritorial application in
cases brought by the SEC or the Justice Department. Kanjorski
explained that the purpose of the language of Section 929P, which he
authored, is to clarify that in actions and proceedings brought by
the SEC or the Justice Department, the specified provisions of the
1933 Act, the 1934 Act and the Investment Advisers Act may have
extraterritorial application. That extraterritorial application is
appropriate, regardless of whether the securities are traded on a
domestic exchange or the transactions occur in the U.S., when the
conduct within the U.S. is significant or when conduct outside the
U.S. has a foreseeable substantial effect within the U.S., he said.
Kanjorski explained that transnational securities
frauds are those in which not all of the fraudulent conduct occurs
within the U.S. or not all of the wrongdoers are located
domestically. The Dodd-Frank Act creates a single national standard
for protecting investors affected by transnational frauds by
codifying the authority to bring proceedings under both the conduct
and the effects tests developed by the federal courts regardless of
the jurisdiction of the proceedings. Under the effects test, courts
inquire whether the wrongful conduct had a substantial effect in the
U.S. or upon U.S. citizens, while the conduct test asks whether the
wrongful conduct occurred in the U.S. (Congressional Record, June
30, 2010, p. H5237).