The World in U.S. Courts: Fall 2014 - Securities Law
September.04.2014
Plaintiff, a Russian citizen living in Russia, sued New York-based financial advisers and entities under the Commodities Exchange Act ("CEA"), alleging fraud in connection with the sale of an interest in a commodity fund. She had been solicited in Russia and bought her interest in that country.
Loginovskaya's claim potentially required that the scope of two provisions of the CEA be determined: Section 4o, which prohibits fraud by certain individuals involved in the sale of interests in commodities, and Section 22, which allows injured parties to sue in four limited circumstances. Starting with Section 22, the Court of Appeals in New York found no indication in the statutory language to provide a private remedy for anything other than "transactions occurring in the territory of the United States." By analogy to decisions in the context of the antifraud provisions of the U.S. securities laws, the Court thus limited potential claims to those where "irrevocable liability" for a transaction arose or title was transferred in the U.S. Since Loginovskaya's transaction occurred in Russia, the test was not satisfied and the Court ruled that her claim could not be heard in the U.S.
The Court considered it unnecessary to reach what it considered the more difficult question whether the underlying violations described in Section 4o, which generally prohibit fraudulent conduct but are not linked to specific "transactions," would be given a broader geographic reach than Section 4o. While not relevant to private claims under Section 22, which as noted above would be limited in all cases to U.S. transactions, the question left open by the Court of Appeals would affect the range of enforcement claims that could be brought by the Government.