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(The news featured below is a selection from the news covered in the Federal Securities Law Reporter, which is distributed to subscribers of SEC Today.)

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).