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Clifford Chance

Clifford Chance

Regulatory Investigations and Financial Crime Insights

Do the U.S. Securities and Commodities Laws Reach Foreign Conduct?

Two recent appellate court decisions shed light on the limited circumstances in which regulators and private plaintiffs can pursue claims for violations of the U.S. securities and commodities laws for conduct occurring outside the United States.

Taken together, two recent appellate decisions, the Securities and Exchange Commission v. Scoville ("Scoville") and Prime International Trading, Ltd. v. BP P.L.C. ("Prime International Trading") decisions, provide opportunities for persons defending U.S. securities and commodities actions involving overseas conduct to achieve an early and efficient favorable resolution. In order to take advantage of any such opportunities, a keen understanding of the territorial limits of the applicable laws will be critical.

In Scoville, an appellate court allowed the U.S. SEC to pursue violations of the antifraud provisions of the Securities Act of 1933 (the "Securities Act") and the Securities Exchange Act of 1934 (the "Exchange Act") involving foreign purchasers of securities, because it found that the securities acts permit the SEC to pursue extraterritorial fraud actions. And in Prime International Trading, Ltd. v. BP P.L.C., an appellate court blocked private plaintiffs from suing for violations of the Commodity Exchange Act (the "CEA") anti-fraud/manipulation provisions arising entirely from overseas crude oil trading activity, because it found that this would be an impermissibly extraterritorial application of that statute. Taken together, and unless other appellate courts take a different view in future cases, these decisions suggest the following:

  • The SEC and the DOJ have authority to pursue certain extraterritorial violations of the securities laws, provided the violations involve:
    • fraud; and
    • either wrongful conduct in the United States, or wrongful conduct outside the United States that has substantial effects within the United States;
  • Neither the CFTC nor the DOJ has authority to pursue extraterritorial violations of the commodities laws (with the possible exception of violations involving swaps);
  • Private plaintiffs can only sue based on domestic violations of the securities laws and the commodities laws, i.e., violations committed within the United States or targeting U.S. markets (again with the possible exception of violations involving swaps); and
  • A suit based on foreign conduct alleged to have "ripple effects" on U.S. markets will not likely be considered by courts to be a domestic application of the securities or commodities laws.