A Bright Idea: A Bright-Line Test for Extraterritoriality in F-Cubed Securities Fraud Private Causes of Action

Coupland, Jennifer Mitchell | January 1, 2012

Whether a foreign or American claimant has a private right of action in so-called ―Foreign-Cubed‖ or ―Foreign-Squared‖ claims under Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Securities and Exchange Commission (SEC) Rule 10b-5 has been the subject of much debate among U.S. courts, Congress, and the international community. Historically, these cases have been heard in the United States if the conduct had a substantial effect in the United States or on U.S. citizens (the effects test), or if the fraudulent or wrongful conduct occurred in the United States (the conduct test). However, in June 2010, the United States Supreme Court struck down both of these tests in favor of a transactional test.

While the Supreme Court seemingly resolved many questions surrounding extraterritorial issues inherent in securities class action suits with its adoption of this transactional test, Congress may have re-opened the issue with the passage of the Dodd-Frank Act. This article argues that Congress and the SEC should limit the extraterritoriality of the Exchange Act on private securities fraud litigation. Additionally, this article argues that both Congress and the SEC should provide courts with a bright-line rule regarding the extraterritorial reach of the Exchange Act.