Should Congress Pass Legislation to Overturn Morrison?

Here at Abbey Spanier we sure think so, and we are not alone.

This is an update to our November post about the SEC’s Study of Extraterritorial Private Rights of Action that followed in the wake of Morrison v. National Australia Bank, 130 S. Ct. 2869 (2010).  Morrison was a highly publicized decision where the U.S. Supreme Court rejected nearly 50 years worth of legal precedents, limiting the ability of Americans to invoke the protections of the U.S. securities laws against transnational securities fraud.  That ruling, which so far has been applied by district courts to deny all federal securities fraud claims by foreign and U.S. investors alike unless they purchased securities traded on U.S exchanges,  regardless of where the fraudulent acts were committed, seems to us to go against the intent and spirit of our securities laws.

Shortly after Morrison was decided, the Dodd-Frank Act was enacted, which restored the ability of the SEC and DOJ to bring enforcement actions for securities fraud if the matter involves: “(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.”  Although the Act did not provide the same protections for private citizens, Section 929Y directed the SEC to conduct a study to determine whether private rights of action should be extended to the same extent as that provided to the SEC and DOJ. 

The SEC received a flood of public comments in response to its study, which were recently made available on its website.  Commentators include, among others, individual foreign investors, litigants, lawyers, foreign and domestic pension funds, the New York State Comptroller, foreign governments and even a group of forty-two law professors.  Many of these commentators attack Morrison and argue that the Supreme Court reached the wrong conclusion and recommend that the SEC should restore the rights of investors under the securities laws.  We agree and urge the SEC to make that recommendation to Congress.

Abbey Spanier will continue to monitor the SEC’s study and report back with any updates.