“Second Circuit Rules on When a Private Securities Transaction is Subject to U.S. Civil Fraud Remedies”
In its decision in 2010, in Morrison v. National Australia Bank, the United States Supreme Court (per Justice Scalia) held that § 10(b) of the Securities Exchange Act of 1934 (“§ 10(b)”) applied only to transactions in securities listed on domestic exchanges and to “domestic transactions in other securities.” This Stroock Special Bulletin looks at the Absolute Activist Value Master Fund Limited. v. Ficeto decision, in which the Second Circuit has now held that in a securities transaction not involving exchange-listed securities, for § 10(b) (and therefore Rule 10b-5) to apply, title must have been transferred in the United States, or the parties must have become irrevocably liable for the purchase or sale in the U.S.
Although this standard is not self-defining, the decision does provide important guidance as to when there will be a civil remedy under 10b-5 in a transnational private placement transaction. Importantly, the decision does not address the applicability of U.S. criminal statutes, including the mail fraud, wire fraud, and RICO statutes, to conduct in the United States where the transfer of securities itself may have occurred abroad.