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Clifford Chance

Clifford Chance


CROSS-BORDER LITIGATION SERIES: Lower Courts Extend Morrison But SEC Asserts Dodd-Frank Act Overrules Morrison for Enforcement Actions

3 February 2011

Approximately six months ago, the United States Supreme Court in Morrison v. National Australia Bank Ltd. changed the paradigm for extraterritorial application of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"). The Supreme Court jettisoned the long-standing conduct and effects test adopted by federal appeals courts, and replaced it with a new transactional test: "whether the purchase or sale [of a security] is made in the United States, or involves a security listed on a domestic exchange." Lower courts have applied Morrison's presumption against extraterritorial application of U.S. federal law to factual circumstances and legal claims not at issue in Morrison. Although Congress quickly moved to reassert the primacy of the conduct and effects test for actions brought by the Securities and Exchange Commission ("SEC"), it did not reverse the effect of Morrison on private lawsuits. Moreover, the SEC has asserted that Morrison does not affect its ability to bring enforcement actions due to specific provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act") that it claims were intended to overturn Morrison.

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