Question Whether Congress Overruled Supreme Court Presumption Against Extraterritorial Application of Securities Laws Left Unresolved

The World in U.S. Courts: Fall 2013 - Securities

United States v. A Chicago Convention Ctr., LLC, 2013 U.S. Dist. LEXIS 109936 (N.D. Ill. Aug. 6, 2013)

The U.S. District Court for the Northern District of Illinois addressed whether Section 929P(b) of the Dodd-Frank Act supersedes Morrison v. National Australia Bank Ltd., 130 S.Ct. 2869 (2010), concerning the determination of whether a defendant’s conduct is domestic for the purposes of Section 10(b) cases brought by the U.S. Securities and Exchange Commission (“SEC”).


The SEC filed an action against defendants Anshoo Sethi and two Illinois based companies, alleging the violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, in connection with the defendants’ alleged offer and sale of securities to over 250 Chinese investors. The defendants moved to dismiss the complaint, arguing that, under the “transactional” test set forth the 2010 decision by the Supreme Court in the Morrison case, the SEC cannot state a claim under Section 10(b) or Rule 10b 5, as the subject transactions were not domestic. In response, the SEC argued that Section 929P (b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) superseded Morrison and revived the “conducts and effects” test that had been previously applied by federal courts.


Section 929P(b), which addresses transactional securities fraud actions brought by the SEC, states that “district courts . . . shall have jurisdiction over an action or proceeding brought or instituted by the [SEC] . . . involving (1) conduct within the United States . . . even if the securities transaction occurs outside the United States and involves only foreign investors; or (2) conduct occurring outside the United States that has a foreseeable substantial effect within the United States.”

The court concluded that a plain meaning interpretation of Section 929P(b) indicates that the statute addresses subject matter jurisdiction, rather than the substantive reach of Section 10(b) (which was addressed in Morrison). However, the court noted that this interpretation would render Section 929P(b) redundant and superfluous in light of other Dodd-Frank provisions. Further, it noted that the Congressional intent behind Section 929P(b) was to rebut Morrison’s presumption against extraterritoriality, and to revive the previously applied “conducts and effects” test. The court, however, declined to resolve these issues and held that the SEC’s complaint sufficiently stated a claim under both the “transactional” and “conducts and effects” tests. Thus, it denied the defendants’ motion to dismiss.

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