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SEC's Post-Morrison Study Draws 'Strong Disappointment' from Comm. Aguilar

Bruce Carton | April 12, 2012

In June 2010, the U.S. Supreme Court held in Morrison v. National Australia Bank that Section 10(b) of the Securities Exchange Act of 1934 applies only in connection with the purchase or sale of a security "listed on an American stock exchange, and the purchase or sale of any other security in the United States." The effect of this has swiftly been that investors defrauded by a company listed on a foreign exchange cannot seek redress in U.S. courts.

When it enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Congress directed the SEC to conduct a study to consider whether Congress should extend the cross-border scope of private actions to allow the type of private actions now barred under Morrison.  After soliciting and reviewing public comments, the staff of the SEC yesterday released its study which did not provide any specific recommendation but rather "attempted to identify the relevant policy considerations that Congress might want to consider as part of a process for determining whether to enact legislation regarding the cross-border scope of Section 10(b) private actions." The staff stated that Congress had several options available to it on the issue, including simply doing nothing and thereby leaving it to the lower courts to continue to interpret and refine the Supreme Court's holding in Morrison.

This study was quickly met with a dissenting statement from SEC Commissioner Luis Aguilar, who wrote to 

convey my strong disappointment that the Study fails to satisfactorily answer the Congressional request, contains no specific recommendations, and does not portray a complete picture of the immense and irreparable investor harm that has resulted, and will continue to result, due to Morrison v. National Australia Bank, Ltd.

Commissioner Aguilar added that he was 

particularly astonished that the Study states (at pages 58-59) that an option "would be for Congress to take no action" and, thus, would continue to deny American investors who have been harmed by fraud the ability to seek redress in court....The answer to the Congressional query about whether to re-establish extraterritorial private rights of action under Section 10(b) of the Exchange Act through the application of the pre-Morrison tests of conduct and effect is an unequivocal yes.