The World in U.S. Courts: Fall 2017 - Securities Law/Commodities Exchange Act (CEA) | August.31.2017
This opinion, though limited in scope, addresses a key recurring issue regarding the applicability of the US securities laws to cross-border transactions alleged to be fraudulent: Where “irrevocable liability” for a securities transaction will be found to have arisen.
The defendants are a Kazakhstani bank and sovereign wealth fund. Previous opinions had rejected various of their arguments that the US laws prohibiting securities could not be applied to the transactions at issue in the complaint without causing the laws to have an impermissibly extraterritorial reach. In this opinion, addressing motions for summary judgment filed after discovery had occurred, the District Court in New York concludes that the facts obtained through discovery likewise suggest that the transactions are, or may be, US “domestic,” and therefore a proper subject for trial.
As relevant here, the Court confirmed that the anti-fraud provisions of the securities laws have no extraterritorial application, and focused on one of the alternative tests under which a transaction is considered US “domestic” (and properly the subject of US litigation): if “irrevocable liability” for the transaction arose in the US Specifically, the Court noted that the plaintiffs “for all intents and purposes” became committed to the purchase of certain new debt securities when a bank’s office in Miami, Florida “submitted electronic forms” on their behalf. Likewise, purchasers of debt securities in the secondary market placed “binding” orders with the same Miami bank office, the counterparties for which were identified by the bank’s office in New Jersey. Thereafter, the transactions were booked, and funds were removed from the plaintiffs’ accounts in Miami. The Court rejected the defendants’ focus on the fact that the transactions were “cleared or settled” in Europe, observing that a transaction would be considered US “domestic” if either title changed hands in the US or “irrevocable liability” for the transaction arose in the US The Court also rejected the defendant’s argument that the securities were acquired in “Regulation S designated transactions,” which governs certain offers and sales of securities outside the United States. It found that the regulation’s definition of a US “offshore” transaction was not the same as that required for an analysis of extraterritoriality, and in any event that the defendant’s own conduct was inconsistent with Regulation S even being applicable to the facts of the case.