The Securities and Exchange Commission is seeking public comment to help it carry out its Dodd-Frank Act mandated study of whether to allow private plaintiffs the right to bring actions involving transnational securities frauds.

In a June decision in Morrison v. National Australia Bank, the Supreme Court significantly limited the extraterritorial scope of Section 10(b) of the Exchange Act, barring so-called "f-cubed" securities fraud actions, lawsuits brought by foreign investors in U.S. courts based on fraud allegations concerning securities issued by foreign companies and traded on foreign exchanges.

The high court rejected two tests previously applied by most federal appeals courts to determine the extraterritorial reach of Section 10(b), and instead held that the securities antifraud provisions under Section 10(b only apply to "transactions in securities listed on domestic exchanges, and domestic transactions in other securities."

Less than a month later, Congress passed the Dodd-Frank Act, which restored the ability of the SEC and the United States to bring actions in cases involving transnational securities fraud.

Section 929P of the Dodd-Frank Act provides that U.S. district courts have jurisdiction over an action brought or instituted by the Commission or the United States alleging a violation of the antifraud provisions of the Exchange Act involving: (1) conduct within the United States that constitutes significant steps in furtherance of the violation, 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.

Section 929Y of the Act directs the SEC to solicit comment and conduct a study to determine whether, and to what extent, private plaintiffs should also be able to bring such actions.

Among other things, the SEC release seeks comment on:

  • The scope of such a private right of action, including whether it should extend to all private actors or whether it should be more limited to extend just to institutional investors or otherwise;

  • What implications such a private right of action would have on international comity;

  • The economic costs and benefits of extending a private right of action for transnational securities frauds; and

  • Whether a narrower extraterritorial standard should be adopted.


The Commission is accepting comments through Feb. 18, 2011.

The SEC will report on the study and make recommendations to the Senate Banking Committee and the House Financial Services Committee in January 2012.