CEA Applies to US Derivatives Transactions Initiated by Non-US Persons and Involving Non-US Underlying Assets

The World in U.S. Courts: Summer 2017 - Securities Law/Commodities Exchange Act (CEA)

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In re Platinum And Palladium Antitrust Litigation, US District Court for the Southern District of New York, March 28, 2017

The plaintiffs were sellers of physical platinum and palladium and related financial instruments all priced with reference to the daily benchmark prices for those metals set in London. They alleged they were injured because the benchmark prices were unlawfully depressed by the defendants. Antitrust claims were dismissed on prudential grounds, and the District Court in New York focused on claims brought under the CEA. The defendants argued that the CEA claims should be dismissed because the statute does not reach extraterritorially to cover the alleged manipulation of benchmark prices on a London exchange.

The Court first observed that, like the principal US securities fraud statutes, the CEA does not apply extraterritorially. “[T]he CEA creates a private right of action for persons anywhere in the world who transact business in the United States, and does not open our courts to people who choose to do business elsewhere.” A US domestic transaction is required, and the Court used the same test applied where other US securities laws are at issue: The relevant transactions must have occurred on a US exchange, or “irrevocable liability” for a transaction must have arisen in the US.

The plaintiffs limited their claims to futures contracts traded on the New York NYMEX exchange and to contracts traded over-the-counter where “irrevocable liability” arose in the US. But the defendants argued that the CEA nevertheless should be found inapplicable because the transactions principally involved “bids, asks, and trades made by foreign employees of mostly foreign corporations in a foreign auction for a foreign physical commodity.” The Court rejected this argument, finding the nationality of the party engaging in the transaction irrelevant and the requirements for jurisdiction otherwise to be satisfied. The Court noted prior appellate precedent in the Parkcentral case in which a securities claim was dismissed even though it met the same jurisdictional requirements, declining to apply the rule of that case beyond the unusual security at issue there.

[Editor’s note: The In re Platinum and Palladium Antitrust Litigation case is also discussed in the Personal Jurisdiction/Forum Non Conveniens section of this report.]

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