COMPETENCE
JURIDICTIONNELLE
DROIT DE LA BOURSE
Fraude boursière
concernant les actions d’une société non cotée dans le for et
Compétence juridictionnelle . Application extraterritoriale du
droit boursier américain
Class action et
compétence juridictionnelle
NOTICE:
Justice Scalia , Opinion of the Court
This opinion is subject to formal revision before
publication in the preliminary print of the United States Readers
are requested to notify the Reporter of Decisions, Reports.
Supreme Court of the United States, Washington, D. C. 20543, of any
typographical or other formal errors, in order that corrections may
be made before the preliminary print goes to press.
SUPREME
COURT OF THE UNITED STATES
ROBERT MORRISON,
et al., PETITIONERS v.
NATIONAL AUSTRALIA BANK
LTD. et al.
on writ of
certiorari to the united states court of appeals for the second
circuit
[June 24, 2010]
Justice Scalia delivered the
opinion of the Court.
We decide whether §10(b) of the Securities
Exchange Act of 1934 provides a cause of action to foreign
plaintiffs suing foreign and American defendants for misconduct in
connection with securities traded on foreign exchanges.
I
Respondent National Australia Bank Limited
(National) was, during the relevant time, the largest bank in
Australia. Its Ordinary Shares—what in America would be called
“common stock”—are traded on the Australian Stock Exchange Limited
and on other foreign securities exchanges, but not on any exchange
in the United States. There are listed on the New York Stock
Exchange, however, National’s American Depositary Receipts (ADRs),
which represent the right to receive a specified number of
National’s Ordinary Shares. 547 F. 3d 167, 168, and n. 1 (CA2 2008).
The complaint alleges the following facts, which
we accept as true. In February 1998, National bought respondent
HomeSide Lending, Inc., a mortgage servicing company headquartered
in Florida. HomeSide’s business was to receive fees for servicing
mortgages (essentially the administrative tasks associated with
collecting mortgage payments, see J. Rosenberg, Dictionary of
Banking and Financial Services 600 (2d ed. 1985)). The rights to
receive those fees, so-called mortgage-servicing rights, can provide
a valuable income stream. See 2 The New Palgrave Dictionary of Money
and Finance 817 (P. Newman, M. Milgate, & J. Eatwell eds. 1992). How
valuable each of the rights is depends, in part, on the likelihood
that the mortgage to which it applies will be fully repaid before it
is due, terminating the need for servicing. HomeSide calculated the
present value of its mortgage-servicing rights by using valuation
models designed to take this likelihood into account. It recorded
the value of its assets, and the numbers appeared in National’s
financial statements.
From 1998 until 2001, National’s annual reports
and other public documents touted the success of HomeSide’s
business, and respondents Frank Cicutto (National’s managing
director and chief executive officer), Kevin Race (HomeSide’s chief
operating officer), and Hugh Harris (HomeSide’s chief executive
officer) did the same in public statements. But on July 5, 2001,
National announced that it was writing down the value of HomeSide’s
assets by $450 million; and then again on September 3, by another
$1.75 billion. The prices of both Ordinary Shares and ADRs slumped.
After downplaying the July write-down, National explained the
September write-down as the result of a failure to anticipate the
lowering of prevailing interest rates (lower interest rates lead to
more refinancings, i.e. , more early repayments of
mortgages), other mistaken assumptions in the financial models, and
the loss of goodwill. According to the complaint, however, HomeSide,
Race, Harris, and another HomeSide senior executive who is also a
respondent here had manipulated HomeSide’s financial models to make
the rates of early repayment unrealistically low in order to cause
the mortgage-servicing rights to appear more valuable than they
really were. The complaint also alleges that National and Cicutto
were aware of this deception by July 2000, but did nothing about it.
As relevant here, petitioners Russell Leslie
Owen and Brian and Geraldine Silverlock, all Australians, purchased
National’s Ordinary Shares in 2000 and 2001, before the write-downs.
1
They sued National, HomeSide, Cicutto, and the
three HomeSide executives in the United States District Court for
the Southern District of New York for alleged violations of §§10(b)
and 20(a) of the Securities and Exchange Act of 1934, 48 Stat.
891,
15 U. S. C. §§78j(b)
and 78t(a), and SEC Rule 10b–5,
17 CFR §240.10b–5
(2009), promulgated pursuant to §10(b).
2
They sought to represent a class
of foreign purchasers of National’s Ordinary Shares during a
specified period up to the September write-down. 547 F. 3d, at 169.
Respondents moved to dismiss for lack of
subject-matter jurisdiction under Federal Rule of Civil Procedure
12(b)(1) and for failure to state a claim under Rule 12(b)(6). The
District Court granted the motion on the former ground, finding no
jurisdiction because the acts in this country were, “at most, a link
in the chain of an alleged overall securities fraud scheme that
culminated abroad.” In re National Australia Bank Securities
Litigation , No. 03 Civ. 6537 (BSJ), 2006 WL 3844465, *8 (SDNY,
Oct. 25, 2006). The Court of Appeals for the Second Circuit affirmed
on similar grounds. The acts performed in the United States did not
“compris[e] the heart of the alleged fraud.” 547 F. 3d, at 175–176.
We granted certiorari, 558 U. S. ___ (2009).
II
Before addressing the question presented, we
must correct a threshold error in the Second Circuit’s analysis. It
considered the extraterritorial reach of §10(b) to raise a question
of subject-matter jurisdiction, wherefore it affirmed the District
Court’s dismissal under Rule 12(b)(1). See 547 F. 3d, at 177. In
this regard it was following Circuit precedent, see Schoenbaum
v. Firstbrook , 405 F. 2d 200, 208, modified on other
grounds en banc, 405 F. 2d 215 (1968). The Second Circuit is hardly
alone in taking this position, see, e.g., In re CP Ships Ltd.
Securities Litigation , 578 F. 3d 1306, 1313 (CA11 2009);
Continental Grain (Australia) PTY. Ltd. v. Pacific Oilseeds,
Inc. , 592 F. 2d 409, 421 (CA8 1979).
But to ask what conduct §10(b) reaches is to ask
what conduct §10(b) prohibits, which is a merits question.
Subject-matter jurisdiction, by contrast, “refers to a tribunal’s
‘ “power to hear a case.” ’ ” Union Pacific R. Co. v.
Locomotive Engineers and Trainmen Gen. Comm. of Adjustment, Central
Region , 558 U. S. ___, ___ (2009) (slip op., at 12) (quoting
Arbaugh v. Y & H Corp. ,
546 U. S. 500, 514
(2006) , in turn quoting United States v. Cotton ,
535 U. S. 625, 630
(2002) ). It presents an issue quite separate from the question
whether the allegations the plaintiff makes entitle him to relief.
See Bell v. Hood ,
327 U. S. 678, 682
(1946) . The District Court here had jurisdiction under
15 U. S. C. §78aa
3
to adjudicate the question whether
§10(b) applies to National’s conduct.
In view of this error, which the parties do not
dispute, petitioners ask us to remand. We think that unnecessary.
Since nothing in the analysis of the courts below turned on the
mistake, a remand would only require a new Rule 12(b)(6) label for
the same Rule 12(b)(1) conclusion. As we have done before in
situations like this, see, e.g., Romero v. International
Terminal Operating Co. ,
358 U. S. 354,
359, 381–384 (1959) , we proceed to address whether petitioners’
allegations state a claim.
III
A
It is a “longstanding principle of American law
‘that legislation of Congress, unless a contrary intent appears, is
meant to apply only within the territorial jurisdiction of the
United States.’ ” EEOC v. Arabian American Oil Co. ,
499 U. S. 244, 248
(1991) (Aramco) (quoting Foley Bros., Inc. v.
Filardo ,
336 U. S. 281, 285
(1949) ). This principle represents a canon of construction, or a
presumption about a statute’s meaning, rather than a limit upon
Congress’s power to legislate, see Blackmer v. United
States ,
284 U. S. 421, 437
(1932) . It rests on the perception that Congress ordinarily
legislates with respect to domestic, not foreign matters. Smith
v. United States ,
507 U. S. 197 ,
n. 5 (1993). Thus, “unless there is the affirmative intention of the
Congress clearly expressed” to give a statute extraterritorial
effect, “we must presume it is primarily concerned with domestic
conditions.” Aramco , supra , at 248 (internal
quotation marks omitted). The canon or presumption applies
regardless of whether there is a risk of conflict between the
American statute and a foreign law, see Sale v. Haitian
Centers Council, Inc. ,
509 U. S. 155,
173–174 (1993) . When a statute gives no clear indication of an
extraterritorial application, it has none.
Despite this principle of interpretation, long
and often recited in our opinions, the Second Circuit believed that,
because the Exchange Act is silent as to the extraterritorial
application of §10(b), it was left to the court to “discern” whether
Congress would have wanted the statute to apply. See 547 F. 3d, at
170 (internal quotation marks omitted). This disregard of the
presumption against extraterritoriality did not originate with the
Court of Appeals panel in this case. It has been repeated over many
decades by various courts of appeals in determining the application
of the Exchange Act, and §10(b) in particular, to fraudulent schemes
that involve conduct and effects abroad. That has produced a
collection of tests for divining what Congress would have wanted,
complex in formulation and unpredictable in application.
As of 1967, district courts at least in the
Southern District of New York had consistently concluded that, by
reason of the presumption against extraterritoriality, §10(b) did
not apply when the stock transactions underlying the violation
occurred abroad. See Schoenbaum v. Firstbrook , 268
F. Supp. 385, 392 (1967) (citing Ferraoli v. Cantor ,
CCH Fed. Sec. L. Rep. ¶91615 (SDNY 1965) and Kook v. Cran
g, 182 F. Supp. 388, 390 (SDNY 1960)). Schoenbaum
involved the sale in Canada of the treasury shares of a Canadian
corporation whose publicly traded shares (but not, of course, its
treasury shares) were listed on both the American Stock Exchange and
the Toronto Stock Exchange. Invoking the presumption against
extraterritoriality, the court held that §10(b) was inapplicable
(though it incorrectly viewed the defect as jurisdictional). 268
F. Supp., at 391–392, 393–394. The decision in Schoenbaum was
reversed, however, by a Second Circuit opinion which held that
“neither the usual presumption against extraterritorial application
of legislation nor the specific language of [§]30(b) show
Congressional intent to preclude application of the Exchange Act to
transactions regarding stocks traded in the United States which are
effected outside the United States … .” Schoenbaum , 405
F. 2d, at 206. It sufficed to apply §10(b) that, although the
transactions in treasury shares took place in Canada, they affected
the value of the common shares publicly traded in the United States.
See id., at 208–209. Application of §10(b), the Second
Circuit found, was “necessary to protect American investors,”
id., at 206.
The Second Circuit took another step with
Leasco Data Processing Equip. Corp. v. Maxwell , 468
F. 2d 1326 (1972), which involved an American company that had been
fraudulently induced to buy securities in England. There, unlike in
Schoenbaum , some of the deceptive conduct had occurred in
the United States but the corporation whose securities were traded
(abroad) was not listed on any domestic exchange. Leasco said
that the presumption against extraterritoriality apples only to
matters over which the United States would not have prescriptive
jurisdiction, 468 F. 2d, at 1334. Congress had prescriptive
jurisdiction to regulate the deceptive conduct in this country, the
language of the Act could be read to cover that conduct, and the
court concluded that “if Congress had thought about the point,” it
would have wanted §10(b) to apply. Id., at 1334–1337.
With Schoenbaum and Leasco on the
books, the Second Circuit had excised the presumption against
extraterritoriality from the jurisprudence of §10(b) and replaced it
with the inquiry whether it would be reasonable (and hence what
Congress would have wanted) to apply the statute to a given
situation. As long as there was prescriptive jurisdiction to
regulate, the Second Circuit explained, whether to apply §10(b) even
to “predominantly foreign” transactions became a matter of whether a
court thought Congress “wished the precious resources of United
States courts and law enforcement agencies to be devoted to them
rather than leave the problem to foreign countries.” Bersch
v. Drexel Firestone, Inc. , 519 F. 2d 974, 985 (1975); see
also IIT v. Vencap, Ltd. , 519 F. 2d 1001, 1017–1018
(CA2 1975).
The Second Circuit had thus established that
application of §10(b) could be premised upon either some effect on
American securities markets or investors (Schoenbaum) or
significant conduct in the United States (Leasco). It later
formalized these two applications into (1) an “effects test,”
“whether the wrongful conduct had a substantial effect in the United
States or upon United States citizens,” and (2) a “conduct test,”
“whether the wrongful conduct occurred in the United States.” SEC
v. Berger , 322 F. 3d 187, 192–193 (CA2 2003). These
became the north star of the Second Circuit’s §10(b) jurisprudence,
pointing the way to what Congress would have wished. Indeed, the
Second Circuit declined to keep its two tests distinct on the ground
that “an admixture or combination of the two often gives a better
picture of whether there is sufficient United States involvement to
justify the exercise of jurisdiction by an American court.” Itoba
Ltd. v. Lep Group PLC , 54 F. 3d 118, 122 (1995). The
Second Circuit never put forward a textual or even extratextual
basis for these tests. As early as Bersch , it confessed that
“if we were asked to point to language in the statutes, or even in
the legislative history, that compelled these conclusions, we would
be unable to respond,” 519 F. 2d, at 993.
As they developed, these tests were not easy to
administer. The conduct test was held to apply differently depending
on whether the harmed investors were Americans or foreigners: When
the alleged damages consisted of losses to American investors
abroad, it was enough that acts “of material importance” performed
in the United States “significantly contributed” to that result;
whereas those acts must have “directly caused” the result when
losses to foreigners abroad were at issue. See Bersch , 519
F. 2d, at 993. And “merely preparatory activities in the United
States” did not suffice “to trigger application of the securities
laws for injury to foreigners located abroad.” Id., at 992.
This required the court to distinguish between mere preparation and
using the United States as a “base” for fraudulent activities in
other countries. Vencap , supra , at 1017–1018. But
merely satisfying the conduct test was sometimes insufficient
without “ ‘some additional factor tipping the scales’ ” in favor of
the application of American law. Interbrew v. Edperbrascan
Corp. , 23 F. Supp. 2d 425, 432 (SDNY 1998) (quoting Europe &
Overseas Commodity Traders, S. A. v. Banque Paribas London
, 147 F. 3d 118, 129 (CA2 1998)). District courts have noted the
difficulty of applying such vague formulations. See, e.g., In re
Alstom SA , 406 F. Supp. 2d 346, 366–385 (SDNY 2005). There is
no more damning indictment of the “conduct” and “effects” tests than
the Second Circuit’s own declaration that “the presence or absence
of any single factor which was considered significant in other cases
… is not necessarily dispositive in future cases.” IIT v.
Cornfeld , 619 F. 2d 909, 918 (1980) (internal quotation marks
omitted).
Other Circuits embraced the Second Circuit’s
approach, though not its precise application. Like the Second
Circuit, they described their decisions regarding the
extraterritorial application of §10(b) as essentially resolving
matters of policy. See, e.g., SEC v. Kasser , 548
F. 2d 109, 116 (CA3 1977); Continental Grain , 592 F. 2d, at
421–422; Grunenthal GmbH v. Hotz , 712 F. 2d 421,
424–425 (CA9 1983); Kauthar SDN BHD v. Sternberg , 149
F. 3d 659, 667 (CA7 1998). While applying the same fundamental
methodology of balancing interests and arriving at what seemed the
best policy, they produced a proliferation of vaguely related
variations on the “conduct” and “effects” tests. As described in a
leading Seventh Circuit opinion: “Although the circuits … seem to
agree that there are some transnational situations to which the
antifraud provisions of the securities laws are applicable,
agreement appears to end at that point.”
4
Id.,
at 665. See also id., at 665–667 (describing
the approaches of the various Circuits and adopting yet another
variation).
At least one Court of Appeals has criticized
this line of cases and the interpretive assumption that underlies
it. In Zoelsch v. Arthur Andersen & Co. , 824 F. 2d
27, 32 (1987) (Bork, J.), the District of Columbia Circuit observed
that rather than courts’ “divining what ‘Congress would have wished’
if it had addressed the problem[, a] more natural inquiry might be
what jurisdiction Congress in fact thought about and conferred.”
Although tempted to apply the presumption against
extraterritoriality and be done with it, see id., at 31–32,
that court deferred to the Second Circuit because of its
“preeminence in the field of securities law,” id., at 32. See
also Robinson v. TCI/US West Communications Inc. , 117
F. 3d 900, 906–907 (CA5 1997) (expressing agreement with Zoelsch
’s criticism of the emphasis on policy considerations in some of
the cases).
Commentators have criticized the unpredictable
and inconsistent application of §10(b) to transnational cases. See,
e.g., Choi & Silberman, Transnational Litigation and Global
Securities Class-Action Lawsuits, 2009 Wis. L. Rev. 465, 467–468;
Chang, Multinational Enforcement of U. S. Securities Laws: The Need
for the Clear and Restrained Scope of Extraterritorial
Subject-Matter Jurisdiction, 9 Fordham J. Corp. & Fin. L. 89,
106–108, 115–116 (2004); Langevoort, Schoenbaum Revisited:
Limiting the Scope of Antifraud Protection in an Internationalized
Securities Marketplace, 55 Law & Contemp. Probs. 241, 244–248
(1992). Some have challenged the premise underlying the Courts of
Appeals’ approach, namely that Congress did not consider the
extraterritorial application of §10(b) (thereby leaving it open to
the courts, supposedly, to determine what Congress would have
wanted). See, e.g., Sachs, The International Reach of Rule
10b–5: The Myth of Congressional Silence, 28 Colum. J. Transnat’l L.
677 (1990) (arguing that Congress considered, but rejected, applying
the Exchange Act to transactions abroad). Others, more
fundamentally, have noted that using congressional silence as a
justification for judge-made rules violates the traditional
principle that silence means no extraterritorial application. See,
e.g., Note, Let There Be Fraud (Abroad): A Proposal for A New
U. S. Jurisprudence with Regard to the Extraterritorial Application
of the Anti-Fraud Provisions of the 1933 and 1934 Securities Acts,
28 Law & Pol’y Int’l Bus. 477, 492–493 (1997).
The criticisms seem to us justified. The results
of judicial-speculation-made-law—divining what Congress would have
wanted if it had thought of the situation before the
court—demonstrate the wisdom of the presumption against
extraterritoriality. Rather than guess anew in each case, we apply
the presumption in all cases, preserving a stable background against
which Congress can legislate with predictable effects.
5
B
Rule 10b–5, the regulation under which
petitioners have brought suit,
6
was promulgated under §10(b), and “does not
extend beyond conduct encompassed by §10(b)’s prohibition.”
United States v. O’Hagan ,
521 U. S. 642,
651 (1997) . Therefore, if §10(b) is not extraterritorial, neither
is Rule 10b–5.
On its face, §10(b) contains nothing to suggest
it applies abroad:
“It shall be unlawful for any person, directly or
indirectly, by the use of any means or instrumentality of interstate
commerce or of the mails, or of any facility of any national
securities exchange … [t]o use or employ, in connection with the
purchase or sale of any security registered on a national securities
exchange or any security not so registered, … any manipulative or
deceptive device or contrivance in contravention of such rules and
regulations as the [Securities and Exchange] Commission may
prescribe … .” 15 U. S. C. 78j(b).
Petitioners and the Solicitor General contend,
however, that three things indicate that §10(b) or the Exchange Act
in general has at least some extraterritorial application.
First, they point to the definition of
“interstate commerce,” a term used in §10(b), which includes “trade,
commerce, transportation, or communication … between any foreign
country and any State.”
15 U. S. C. §78c(a)(17).
But “we have repeatedly held that even statutes that contain broad
language in their definitions of ‘commerce’ that expressly refer to
‘ foreign commerce’ do not apply abroad.” Aramco , 499
U. S., at 251; see id., at 251–252 (discussing cases). The
general reference to foreign commerce in the definition of
“interstate commerce” does not defeat the presumption against
extraterritoriality.
7
Petitioners and the Solicitor General next point out
that Congress, in describing the purposes of the Exchange Act,
observed that the “prices established and offered in such
transactions are generally disseminated and quoted throughout the
United States and foreign countries.”
15 U. S. C. §78b(2).
The antecedent of “such transactions,” however, is found in the
first sentence of the section, which declares that “transactions in
securities as commonly conducted upon securities exchanges and
over-the-counter markets are affected with a national public
interest.” §78b. Nothing suggests that this national public
interest pertains to transactions conducted upon foreign
exchanges and markets. The fleeting reference to the dissemination
and quotation abroad of the prices of securities traded in domestic
exchanges and markets cannot overcome the presumption against
extraterritoriality.
Finally, there is §30(b) of the Exchange Act,
15 U. S. C. §78dd(b),
which does mention the Act’s extraterritorial application:
“The provisions of [the Exchange Act] or of any rule or regulation
thereunder shall not apply to any person insofar as he transacts a
business in securities without the jurisdiction of the United
States,” unless he does so in violation of regulations promulgated
by the Securities and Exchange Commission “to prevent … evasion of
[the Act].” (The parties have pointed us to no regulation
promulgated pursuant to §30(b).) The Solicitor General argues that
“[this] exemption would have no function if the Act did not apply in
the first instance to securities transactions that occur abroad.”
Brief for United States as Amicus Curiae 14.
We are not convinced. In the first place, it
would be odd for Congress to indicate the extraterritorial
application of the whole Exchange Act by means of a provision
imposing a condition precedent to its application abroad. And if the
whole Act applied abroad, why would the Commission’s enabling
regulations be limited to those preventing “evasion” of the Act,
rather than all those preventing “violation”? The provision seems to
us directed at actions abroad that might conceal a domestic
violation, or might cause what would otherwise be a domestic
violation to escape on a technicality. At most, the Solicitor
General’s proposed inference is possible; but possible
interpretations of statutory language do not override the
presumption against extraterritoriality. See Aramco ,
supra , at 253.
The Solicitor General also fails to account for
§30(a), which reads in relevant part as follows:
“It shall be unlawful for any broker or dealer …
to make use of the mails or of any means or instrumentality of
interstate commerce for the purpose of effecting on an exchange not
within or subject to the jurisdiction of the United States, any
transaction in any security the issuer of which is a resident of, or
is organized under the laws of, or has its principal place of
business in, a place within or subject to the jurisdiction of the
United States, in contravention of such rules and regulations as the
Commission may prescribe … .”
15 U. S. C. §78dd(a).
Subsection 30(a) contains what §10(b) lacks: a clear
statement of extraterritorial effect. Its explicit provision for a
specific extraterritorial application would be quite superfluous if
the rest of the Exchange Act already applied to transactions on
foreign exchanges—and its limitation of that application to
securities of domestic issuers would be inoperative. Even if that
were not true, when a statute provides for some extraterritorial
application, the presumption against extraterritoriality operates to
limit that provision to its terms. See Microsoft Corp. v.
AT&T Corp. ,
550 U. S. 437,
455–456 (2007) . No one claims that §30(a) applies here.
The concurrence claims we have impermissibly
narrowed the inquiry in evaluating whether a statute applies abroad,
citing for that point the dissent in Aramco , see post
, at 6. But we do not say, as the concurrence seems to think, that
the presumption against extraterritoriality is a “clear statement
rule,” ibid., if by that is meant a requirement that a
statute say “this law applies abroad.” Assuredly context can be
consulted as well. But whatever sources of statutory meaning one
consults to give “the most faithful reading” of the text, post
, at 7, there is no clear indication of extraterritoriality
here. The concurrence does not even try to refute that conclusion,
but merely puts forward the same (at best) uncertain indications
relied upon by petitioners and the Solicitor General. As the opinion
for the Court in Aramco (which we prefer to the
dissent) shows, those uncertain indications do not suffice.
8
In short, there is no affirmative indication in
the Exchange Act that §10(b) applies extraterritorially, and we
therefore conclude that it does not.
IV
A
Petitioners argue that the conclusion that
§10(b) does not apply extraterritorially does not resolve this case.
They contend that they seek no more than domestic application
anyway, since Florida is where HomeSide and its senior executives
engaged in the deceptive conduct of manipulating HomeSide’s
financial models; their complaint also alleged that Race and Hughes
made misleading public statements there. This is less an answer to
the presumption against extraterritorial application than it is an
assertion—a quite valid assertion—that that presumption here (as
often) is not self-evidently dispositive, but its application
requires further analysis. For it is a rare case of prohibited
extraterritorial application that lacks all contact with the
territory of the United States. But the presumption against
extraterritorial application would be a craven watchdog indeed if it
retreated to its kennel whenever some domestic activity is
involved in the case. The concurrence seems to imagine just such a
timid sentinel, see post , at 7–8, but our cases are to the
contrary. In Aramco , for example, the Title VII plaintiff
had been hired in Houston, and was an American citizen. See 499
U. S., at 247. The Court concluded, however, that neither that
territorial event nor that relationship was the “focus” of
congressional concern, id. , at 255, but rather domestic
employment. See also Foley Bros. , 336 U. S., at 283,
285–286.
Applying the same mode of analysis here, we
think that the focus of the Exchange Act is not upon the place where
the deception originated, but upon purchases and sales of securities
in the United States. Section 10(b) does not punish deceptive
conduct, but only deceptive conduct “in connection with the purchase
or sale of any security registered on a national securities exchange
or any security not so registered.”
15 U. S. C. §78j(b).
See SEC v. Zandford ,
535 U. S. 813, 820
(2002) . Those purchase-and-sale transactions are the objects of the
statute’s solicitude. It is those transactions that the statute
seeks to “regulate,” see Superintendent of Ins. of N. Y. v.
Bankers Life & Casualty Co. ,
404 U. S. 6, 12
(1971) ; it is parties or prospective parties to those transactions
that the statute seeks to “protec[t],” id. , at 10. See also
Ernst & Ernst v. Hochfelder ,
425 U. S. 185, 195
(1976) . And it is in our view only transactions in securities
listed on domestic exchanges, and domestic transactions in other
securities, to which §10(b) applies.
9
The primacy of the domestic exchange is
suggested by the very prologue of the Exchange Act, which sets forth
as its object “[t]o provide for the regulation of securities
exchanges … operating in interstate and foreign commerce and through
the mails, to prevent inequitable and unfair practices on such
exchanges … .” 48 Stat.
881. We know of no
one who thought that the Act was intended to “regulat[e]” foreign
securities exchanges—or indeed who even believed that under
established principles of international law Congress had the power
to do so. The Act’s registration requirements apply only to
securities listed on national securities exchanges.
15 U. S. C. §78
l (a).
With regard to securities not registered
on domestic exchanges, the exclusive focus on domestic
purchases and sales
10
is strongly confirmed by §30(a)
and (b), discussed earlier. The former extends the normal scope of
the Exchange Act’s prohibitions to acts effecting, in violation of
rules prescribed by the Commission, a “transaction” in a United
States security “on an exchange not within or subject to the
jurisdiction of the United States.” §78dd(a). And the latter
specifies that the Act does not apply to “any person insofar as he
transacts a business in securities without the jurisdiction of the
United States,” unless he does so in violation of regulations
promulgated by the Commission “to prevent evasion [of the Act].”
§78dd(b). Under both provisions it is the foreign location of the
transaction that establishes (or reflects the presumption of)
the Act’s inapplicability, absent regulations by the Commission.
The same focus on domestic transactions is
evident in the Securities Act of 1933, 48 Stat.
74, enacted by the
same Congress as the Exchange Act, and forming part of the same
comprehensive regulation of securities trading. See Central Bank
of Denver, N. A. v. First Interstate Bank of Denver, N. A.
,
511 U. S. 164,
170–171 (1994) . That legislation makes it unlawful to sell a
security, through a prospectus or otherwise, making use of “any
means or instruments of transportation or communication in
interstate commerce or of the mails,” unless a registration
statement is in effect.
15 U. S. C. §77e(a)(1).
The Commission has interpreted that requirement “not to include …
sales that occur outside the United States.”
17 CFR §230.901
(2009).
Finally, we reject the notion that the Exchange
Act reaches conduct in this country affecting exchanges or
transactions abroad for the same reason that Aramco rejected
overseas application of Title VII to all domestically concluded
employment contracts or all employment contracts with American
employers: The probability of incompatibility with the applicable
laws of other countries is so obvious that if Congress intended such
foreign application “it would have addressed the subject of
conflicts with foreign laws and procedures.” 499 U. S., at 256. Like
the United States, foreign countries regulate their domestic
securities exchanges and securities transactions occurring within
their territorial jurisdiction. And the regulation of other
countries often differs from ours as to what constitutes fraud, what
disclosures must be made, what damages are recoverable, what
discovery is available in litigation, what individual actions may be
joined in a single suit, what attorney’s fees are recoverable, and
many other matters. See, e.g., Brief for United Kingdom of
Great Britain and Northern Ireland as Amicus Curiae 16–21.
The Commonwealth of Australia, the United Kingdom of Great Britain
and Northern Ireland, and the Republic of France have filed
amicus briefs in this case. So have (separately or jointly) such
international and foreign organizations as the International Chamber
of Commerce, the Swiss Bankers Association, the Federation of German
Industries, the French Business Confederation, the Institute of
International Bankers, the European Banking Federation, the
Australian Bankers’ Association, and the Association Franaise des
Entreprises Privées. They all complain of the interference with
foreign securities regulation that application of §10(b) abroad
would produce, and urge the adoption of a clear test that will avoid
that consequence. The transactional test we have adopted—whether the
purchase or sale is made in the United States, or involves a
security listed on a domestic exchange—meets that requirement.
B
The Solicitor General suggests a different test,
which petitioners also endorse: “[A] transnational securities fraud
violates [§]10(b) when the fraud involves significant conduct in the
United States that is material to the fraud’s success.” Brief for
United States as Amicus Curiae 16; see Brief for Petitioners
26. Neither the Solicitor General nor petitioners provide any
textual support for this test. The Solicitor General sets forth a
number of purposes such a test would serve: achieving a high
standard of business ethics in the securities industry, ensuring
honest securities markets and thereby promoting investor confidence,
and preventing the United States from becoming a “Barbary Coast” for
malefactors perpetrating frauds in foreign markets. Brief for United
States as Amicus Curiae 16–17. But it provides no textual
support for the last of these purposes, or for the first two as
applied to the foreign securities industry and securities markets
abroad. It is our function to give the statute the effect its
language suggests, however modest that may be; not to extend it to
admirable purposes it might be used to achieve.
If, moreover, one is to be attracted by the
desirable consequences of the “significant and material conduct”
test, one should also be repulsed by its adverse consequences. While
there is no reason to believe that the United States has become the
Barbary Coast for those perpetrating frauds on foreign securities
markets, some fear that it has become the Shangri-La of class-action
litigation for lawyers representing those allegedly cheated in
foreign securities markets. See Brief for Infineon Technologies AG
as Amicus Curiae 1–2, 22–25; Brief for European Aeronautic
Defence & Space Co. N. V. et al. as Amici Curiae 2–4; Brief
for Securities Industry and Financial Markets Association et al. as
Amici Curiae 10–16; Coffee, Securities Policeman to the
World? The Cost of Global Class Actions, N. Y. L. J. 5 (2008);
S. Grant & D. Zilka, The Current Role of Foreign Investors in
Federal Securities Class Actions, PLI Corporate Law and Practice
Handbook Series, PLI Order No. 11072, pp. 15–16 (Sept.-Oct. 2007);
Buxbaum, Multinational Class Actions Under Federal Securities Law:
Managing Jurisdictional Conflict, 46 Colum. J. Transnat’l L. 14,
38–41 (2007).
As case support for the “significant and
material conduct” test, the Solicitor General relies primarily on
Pasquantino v. United States ,
544 U. S. 349
(2005) .
11
In that case we concluded that the wire-fraud
statute,
18 U. S. C. §1343
(2009 ed., Supp. II), was violated by defendants who ordered liquor
over the phone from a store in Maryland with the intent to smuggle
it into Canada and deprive the Canadian Government of revenue. 544
U. S., at 353, 371. Section 1343 prohibits “any scheme or artifice
to defraud,”—fraud simpliciter , without any requirement that
it be “in connection with” any particular transaction or event. The
Pasquantino Court said that the petitioners’ “offense was
complete the moment they executed the scheme inside the United
States,” and that it was “[t]his domestic element of petitioners’
conduct [that] the Government is punishing.” 544 U. S., at 371.
Section 10(b), by contrast, punishes not all acts of deception, but
only such acts “in connection with the purchase or sale of any
security registered on a national securities exchange or any
security not so registered.” Not deception alone, but deception with
respect to certain purchases or sales is necessary for a violation
of the statute.
The Solicitor General points out that the
“significant and material conduct” test is in accord with prevailing
notions of international comity. If so, that proves that if
the United States asserted prescriptive jurisdiction pursuant to the
“significant and material conduct” test it would not violate
customary international law; but it in no way tends to prove that
that is what Congress has done.
Finally, the Solicitor General argues that the
Commission has adopted an interpretation similar to the “significant
and material conduct” test, and that we should defer to that. In the
two adjudications the Solicitor General cites, however, the
Commission did not purport to be providing its own interpretation of
the statute, but relied on decisions of federal courts—mainly Court
of Appeals decisions that in turn relied on the Schoenbaum
and Leasco decisions of the Second Circuit that we discussed
earlier. See In re United Securities Clearing Corp. , 52
S. E. C. 92, 95, n. 14, 96, n. 16 (1994); In re Robert F. Lynch
, Exchange Act Release No. 11737, 8 S. E. C. Docket 75, 77,
n. 15 (1975). We need “accept only those agency interpretations that
are reasonable in light of the principles of construction courts
normally employ.” Aramco , 499 U. S., at 260 (S
calia , J., concurring in part and
concurring in judgment). Since the Commission’s interpretations
relied on cases we disapprove, which ignored or discarded the
presumption against extraterritoriality, we owe them no deference.
* * *
Section 10(b) reaches the use of a manipulative
or deceptive device or contrivance only in connection with the
purchase or sale of a security listed on an American stock exchange,
and the purchase or sale of any other security in the United States.
This case involves no securities listed on a domestic exchange, and
all aspects of the purchases complained of by those petitioners who
still have live claims occurred outside the United States.
Petitioners have therefore failed to state a claim on which relief
can be granted. We affirm the dismissal of petitioners’ complaint on
this ground.
It is so ordered.
<tab>Justice Sotomayor
took no part in the
consideration or decision of this case.
Notes
Breyer, J., concurring
SUPREME COURT OF THE UNITED STATES
ROBERT
MORRISON, et al., PETITIONERS v.
NATIONAL AUSTRALIA BANK
LTD. et al.
on writ of
certiorari to the united states court of appeals for the second
circuit
[June 24, 2010]
Justice Breyer , concurring in
part and concurring in the judgment.
Section 10(b) of the Securities Exchange Act of
1934 applies to fraud “in connection with” two categories of
transactions: (1) “the purchase or sale of any security registered
on a national securities exchange” or (2) “the purchase or sale of …
any security not so registered.”
15 U. S. C. §78j(b).
In this case, the purchased securities are listed only on a few
foreign exchanges, none of which has registered with the Securities
and Exchange Commission as a “national securities exchange.” See
§78f. The first category therefore does not apply. Further, the
relevant purchases of these unregistered securities took place
entirely in Australia and involved only Australian investors. And in
accordance with the presumption against extraterritoriality, I do
not read the second category to include such transactions. Thus,
while state law or other federal fraud statutes, see, e.g.,
18 U. S. C. §1341
(mail fraud), §1343 (wire fraud), may apply to the fraudulent
activity alleged here to have occurred in the United States, I
believe that §10(b) does not. This case does not require us to
consider other circumstances.
To the extent the Court’s opinion is consistent
with these views, I join it.
Stevens, J., concurring in judgment
SUPREME COURT OF THE UNITED STATES
ROBERT
MORRISON, et al., PETITIONERS v.
NATIONAL AUSTRALIA BANK
LTD. et al.
on writ of
certiorari to the united states court of appeals for the second
circuit
[June 24, 2010]
Justice Stevens , with whom
Justice Ginsburg joins, concurring in
the judgment.
While I agree that petitioners have failed to
state a claim on which relief can be granted, my reasoning differs
from the Court’s. I would adhere to the general approach that has
been the law in the Second Circuit, and most of the rest of the
country, for nearly four decades.
I
Today the Court announces a new “transactional
test,” ante , at 21, for defining the reach of §10(b) of the
Securities Exchange Act of 1934 (Exchange Act),
15 U. S. C. §78j(b),
and SEC Rule 10b–5,
17 CFR §240.10b–5(b)
(2009): Henceforth, those provisions will extend only to
“transactions in securities listed on domestic exchanges … and
domestic transactions in other securities,” ante , at 18. If
one confines one’s gaze to the statutory text, the Court’s
conclusion is a plausible one. But the federal courts have been
construing §10(b) in a different manner for a long time, and the
Court’s textual analysis is not nearly so compelling, in my view, as
to warrant the abandonment of their doctrine.
The text and history of §10(b) are famously
opaque on the question of when, exactly, transnational securities
frauds fall within the statute’s compass. As those types of frauds
became more common in the latter half of the 20th century, the
federal courts were increasingly called upon to wrestle with that
question. The Court of Appeals for the Second Circuit, located in
the Nation’s financial center, led the effort. Beginning in earnest
with Schoenbaum v. Firstbrook , 405 F. 2d 200, rev’d
on rehearing on other grounds, 405 F. 2d 215 (1968) (en banc), that
court strove, over an extended series of cases, to “discern” under
what circumstances “Congress would have wished the precious
resources of the United States courts and law enforcement agencies
to be devoted to [transnational] transactions,” 547 F. 3d 167, 170
(2008) (internal quotation marks omitted). Relying on opinions by
Judge Henry Friendly,
1
the Second Circuit eventually
settled on a conduct-and-effects test. This test asks “(1) whether
the wrongful conduct occurred in the Unites States, and (2) whether
the wrongful conduct had a substantial effect in the United States
or upon United States citizens.” Id., at 171. Numerous cases
flesh out the proper application of each prong.
The Second Circuit’s test became the “north
star” of §10(b) jurisprudence, ante , at 8, not just
regionally but nationally as well. With minor variations, other
courts converged on the same basic approach.
2
See Brief for United States as
Amicus Curiae 15 (“The courts have uniformly agreed that Section
10(b) can apply to a transnational securities fraud either when
fraudulent conduct has effects in the United States or when
sufficient conduct relevant to the fraud occurs in the United
States”); see also 1 Restatement (Third) of Foreign Relations Law of
the United States §416 (1986) (setting forth conduct-and-effects
test). Neither Congress nor the Securities Exchange Commission
(Commission) acted to change the law. To the contrary, the
Commission largely adopted the Second Circuit’s position in its own
adjudications. See ante , at 23–24.
In light of this history, the Court’s critique
of the decision below for applying “judge-made rules” is quite
misplaced. Ante , at 11. This entire area of law is replete
with judge-made rules, which give concrete meaning to Congress’
general commands.
3
“When we deal with private actions under Rule
10b–5,” then-Justice Rehnquist wrote many years ago, “we deal with a
judicial oak which has grown from little more than a legislative
acorn.” Blue Chip Stamps v. Manor Drug Stores ,
421 U. S. 723, 737
(1975) . The “ ‘Mother Court’ ” of securities law tended to that
oak. Id., at 762 (Blackmun, J., dissenting) (describing the
Second Circuit). One of our greatest jurists—the judge who, “without
a doubt, did more to shape the law of securities regulation than any
[other] in the country”
4
—was its master arborist.
The development of §10(b) law was hardly an
instance of judicial usurpation. Congress invited an expansive role
for judicial elaboration when it crafted such an open-ended statute
in 1934. And both Congress and the Commission subsequently affirmed
that role when they left intact the relevant statutory and
regulatory language, respectively, throughout all the years that
followed. See Brief for Alecta pensionsförskring, ömsesidigt et al.
as Amici Curiae 31–33; cf. Musick, Peeler & Garrett v.
Employers Ins. of Wausau ,
508 U. S. 286, 294
(1993) (inferring from recent legislation Congress’ desire to “acknowledg[e]”
the 10b–5 action without “entangling” itself in the precise
formulation thereof). Unlike certain other domains of securities
law, this is “a case in which Congress has enacted a regulatory
statute and then has accepted, over a long period of time, broad
judicial authority to define substantive standards of conduct and
liability,” and much else besides. Stoneridge Investment
Partners, LLC v. Scientific-Atlanta, Inc. ,
552 U. S. 148,
163 (2008) .
This Court has not shied away from acknowledging
that authority. We have consistently confirmed that, in applying
§10(b) and Rule 10b–5, courts may need “to flesh out the portions of
the law with respect to which neither the congressional enactment
nor the administrative regulations offer conclusive guidance.”
Blue Chip , 421 U. S., at 737. And we have unanimously
“recogniz[ed] a judicial authority to shape … the 10b–5 cause of
action,” for that is a task “Congress has left to us.” Musick,
Peeler , 508 U. S., at 293, 294; see also id., at 292
(noting with approval that “federal courts have accepted and
exercised the principal responsibility for the continuing
elaboration of the scope of the 10b–5 right and the definition of
the duties it imposes”). Indeed, we have unanimously endorsed the
Second Circuit’s basic interpretive approach to §10(b)—ridiculed by
the Court today—of striving to “divin[e] what Congress would have
wanted,” ante , at 12.
5
“Our task,” we have said, is “to
attempt to infer how the 1934 Congress would have addressed the
issue.” Musick, Peeler , 508 U. S., at 294.
Thus, while the Court devotes a considerable
amount of attention to the development of the case law, ante
, at 6–10, it draws the wrong conclusions. The Second Circuit
refined its test over several decades and dozens of cases, with the
tacit approval of Congress and the Commission and with the general
assent of its sister Circuits. That history is a reason we should
give additional weight to the Second Circuit’s “judge-made”
doctrine, not a reason to denigrate it. “The longstanding acceptance
by the courts, coupled with Congress’ failure to reject [its]
reasonable interpretation of the wording of §10(b), … argues
significantly in favor of acceptance of the [Second Circuit] rule by
this Court.” Blue Chip , 421 U. S., at 733.
II
The Court’s other main critique of the Second
Circuit’s approach—apart from what the Court views as its excessive
reliance on functional considerations and reconstructed
congressional intent—is that the Second Circuit has “disregard[ed]”
the presumption against extraterritoriality. Ante , at 6. It
is the Court, however, that misapplies the presumption, in two main
respects.
First, the Court seeks to transform the
presumption from a flexible rule of thumb into something more like a
clear statement rule. We have been here before. In the case on which
the Court primarily relies, EEOC v. Arabian American Oil
Co. ,
499 U. S. 244
(1991) (Aramco) , Chief Justice Rehnquist’s majority opinion
included a sentence that appeared to make the same move. See id.,
at 258 (“Congress’ awareness of the need to make a clear
statement that a statute applies overseas is amply demonstrated by
the numerous occasions on which it has expressly legislated the
extraterritorial application of a statute”). Justice Marshall, in
dissent, vigorously objected. See id., at 261 (“[C]ontrary to
what one would conclude from the majority’s analysis, this canon is
not a ‘clear statement’ rule, the application of which
relieves a court of the duty to give effect to all available indicia
of the legislative will”).
Yet even Aramco —surely the most extreme
application of the presumption against extraterritoriality in my
time on the Court
6
—contained numerous passages suggesting that the
presumption may be overcome without a clear directive. See id.,
at 248–255 (majority opinion) (repeatedly identifying
congressional “intent” as the touchstone of the presumption). And
our cases both before and after Aramco make perfectly clear
that the Court continues to give effect to “ all available
evidence about the meaning” of a provision when considering its
extraterritorial application, lest we defy Congress’ will. Sale
v. Haitian Centers Council, Inc. ,
509 U. S. 155, 177
(1993) (emphasis added).
7
Contrary to
Justice Scalia ’s personal view of
statutory interpretation, that evidence legitimately encompasses
more than the enacted text. Hence, while the Court’s dictum that
“[w]hen a statute gives no clear indication of an extraterritorial
application, it has none,” ante , at 6, makes for a nice
catchphrase, the point is overstated. The presumption against
extraterritoriality can be useful as a theory of congressional
purpose, a tool for managing international conflict, a background
norm, a tiebreaker. It does not relieve courts of their duty to give
statutes the most faithful reading possible.
Second, and more fundamentally, the Court errs
in suggesting that the presumption against extraterritoriality is
fatal to the Second Circuit’s test. For even if the presumption
really were a clear statement (or “clear indication,” ante ,
at 6, 16) rule, it would have only marginal relevance to this case.
It is true, of course, that “this Court
ordinarily construes ambiguous statutes to avoid unreasonable
interference with the sovereign authority of other nations,”
F. Hoffmann-La Roche Ltd v. Empagran S. A. ,
542 U. S. 155, 164
(2004) , and that, absent contrary evidence, we presume “Congress is
primarily concerned with domestic conditions,” Foley Bros., Inc.
v. Filardo ,
336 U. S. 281,
285 (1949) . Accordingly, the presumption against
extraterritoriality “provides a sound basis for concluding that
Section 10(b) does not apply when a securities fraud with no effects
in the United States is hatched and executed entirely outside this
country.” Brief for United States as Amicus Curiae 22. But
that is just about all it provides a sound basis for concluding. And
the conclusion is not very illuminating, because no party to the
litigation disputes it. No one contends that §10(b) applies to
wholly foreign frauds.
Rather, the real question in this case is how
much, and what kinds of, domestic contacts are sufficient to
trigger application of §10(b).
8
In developing its
conduct-and-effects test, the Second Circuit endeavored to derive a
solution from the Exchange Act’s text, structure, history, and
purpose. Judge Friendly and his colleagues were well aware that
United States courts “cannot and should not expend [their] resources
resolving cases that do not affect Americans or involve fraud
emanating from America.” 547 F. 3d, at 175; see also id., at
171 (overriding concern is “ ‘whether there is sufficient United
States involvement’ ” (quoting Itoba Ltd. v. Lep Group PLC
, 54 F. 3d 118, 122 (CA2 1995))).
The question just stated does not admit of an
easy answer. The text of the Exchange Act indicates that §10(b)
extends to at least some activities with an international component,
but, again, it is not pellucid as to which ones.
9
The Second Circuit draws the line as follows:
§10(b) extends to transnational frauds “only when substantial acts
in furtherance of the fraud were committed within the United
States,” SEC v. Berger , 322 F. 3d 187, 193 (CA2 2003)
(internal quotation marks omitted), or when the fraud was
“ ‘intended to produce’ ” and did produce “ ‘detrimental effects
within’ ” the United States, Schoenbaum , 405 F. 2d, at 206.
10
This approach is consistent with the
understanding shared by most scholars that Congress, in passing the
Exchange Act, “expected U. S. securities laws to apply to certain
international transactions or conduct.” Buxbaum, Multinational Class
Actions Under Federal Securities Law: Managing Jurisdictional
Conflict, 46 Colum. J. Transnat’l L. 14, 19 (2007); see also
Leasco Data Processing Equip. Corp. v. Maxwell , 468
F. 2d 1326, 1336 (CA2 1972) (Friendly, J.) (detailing evidence that
Congress “meant §10(b) to protect against fraud in the sale or
purchase of securities whether or not these were traded on organized
United States markets”). It is also consistent with the traditional
understanding, regnant in the 1930’s as it is now, that the
presumption against extraterritoriality does not apply “when the
conduct [at issue] occurs within the United States,” and has lesser
force when “the failure to extend the scope of the statute to a
foreign setting will result in adverse effects within the United
States.” Environmental Defense Fund, Inc. v. Massey ,
986 F. 2d 528, 531 (CADC 1993); accord, Restatement (Second) of
Foreign Relations Law of the United States §38 (1964–1965); cf.
Small v. United States ,
544 U. S. 385, 400
(2005) ( Thomas , J., joined by
Scalia and
Kennedy , JJ., dissenting) (presumption against
extraterritoriality “lend[s] no support” to a “rule restricting a
federal statute from reaching conduct within U. S. borders
”); Continental Ore Co. v. Union Carbide & Carbon Corp.
,
370 U. S. 690, 705
(1962) (presumption against extraterritoriality not controlling
“[s]ince the activities of the defendants had an impact within the
United States and upon its foreign trade”). And it strikes a
reasonable balance between the goals of “preventing the export of
fraud from America,” protecting shareholders, enhancing investor
confidence, and deterring corporate misconduct, on the one hand, and
conserving United States resources and limiting conflict with
foreign law, on the other.
11
547 F. 3d, at 175.
Thus, while §10(b) may not give any “clear
indication” on its face as to how it should apply to transnational
securities frauds, ante , at 6, 16, it does give strong clues
that it should cover at least some of them, see n. 9, supra .
And in my view, the Second Circuit has done the best job of
discerning what sorts of transnational frauds Congress meant in
1934—and still means today—to regulate. I do not take issue with the
Court for beginning its inquiry with the statutory text, rather than
the doctrine in the Courts of Appeals. Cf. ante , at 18,
n. 9. I take issue with the Court for beginning and ending
its inquiry with the statutory text, when the text does not speak
with geographic precision, and for dismissing the long pedigree of,
and the persuasive account of congressional intent embodied in, the
Second Circuit’s rule.
Repudiating the Second Circuit’s approach in its
entirety, the Court establishes a novel rule that will foreclose
private parties from bringing §10(b) actions whenever the relevant
securities were purchased or sold abroad and are not listed on a
domestic exchange.
12
The real motor of the Court’s opinion, it seems,
is not the presumption against extraterritoriality but rather the
Court’s belief that transactions on domestic exchanges are “the
focus of the Exchange Act” and “the objects of [its] solicitude.”
Ante , at 17, 18. In reality, however, it is the “public
interest” and “the interests of investors” that are the objects of
the statute’s solicitude. Europe & Overseas Commodity Traders,
S. A. v. Banque Paribas London , 147 F. 3d 118, 125 (CA2
1998) (citing H. R. Rep. No. 1838, 73d Cong., 2d Sess., 32–33
(1934)); see also Basic Inc. v. Levinson ,
485 U. S. 224, 230
(1988) (“The 1934 Act was designed to protect investors against
manipulation of stock prices” (citing S. Rep. No. 792, 73d Cong., 2d
Sess., 1–5 (1934)); Ernst & Ernst v. Hochfelder ,
425 U. S. 185,
195 (1976) (“The 1934 Act was intended principally to protect
investors … ”); S. Rep. No. 1455, 73d Cong., 2d Sess., 68 (1934)
(“The Securities Exchange Act of 1934 aims to protect the interests
of the public against the predatory operations of directors,
officers, and principal stockholders of corporations … ”). And while
the clarity and simplicity of the Court’s test may have some
salutary consequences, like all bright-line rules it also has
drawbacks.
Imagine, for example, an American investor who
buys shares in a company listed only on an overseas exchange. That
company has a major American subsidiary with executives based in New
York City; and it was in New York City that the executives
masterminded and implemented a massive deception which artificially
inflated the stock price—and which will, upon its disclosure, cause
the price to plummet. Or, imagine that those same executives go
knocking on doors in Manhattan and convince an unsophisticated
retiree, on the basis of material misrepresentations, to invest her
life savings in the company’s doomed securities. Both of these
investors would, under the Court’s new test, be barred from seeking
relief under §10(b).
The oddity of that result should give pause. For
in walling off such individuals from §10(b), the Court narrows the
provision’s reach to a degree that would surprise and alarm
generations of American investors—and, I am convinced, the Congress
that passed the Exchange Act. Indeed, the Court’s rule turns §10(b)
jurisprudence (and the presumption against extraterritoriality) on
its head, by withdrawing the statute’s application from cases in
which there is both substantial wrongful conduct that
occurred in the United States and a substantial injurious
effect on United States markets and citizens.
III
In my judgment, if petitioners’ allegations of
fraudulent misconduct that took place in Florida are true, then
respondents may have violated §10(b), and could potentially be held
accountable in an enforcement proceeding brought by the Commission.
But it does not follow that shareholders who have failed to allege
that the bulk or the heart of the fraud occurred in the United
States, or that the fraud had an adverse impact on American
investors or markets, may maintain a private action to recover
damages they suffered abroad. Some cases involving foreign
securities transactions have extensive links to, and ramifications
for, this country; this case has Australia written all over it.
Accordingly, for essentially the reasons stated in the Court of
Appeals’ opinion, I would affirm its judgment.
The Court instead elects to upend a significant
area of securities law based on a plausible, but hardly decisive,
construction of the statutory text. In so doing, it pays short
shrift to the United States’ interest in remedying frauds that
transpire on American soil or harm American citizens, as well as to
the accumulated wisdom and experience of the lower courts. I happen
to agree with the result the Court reaches in this case. But “I
respectfully dissent,” once again, “from the Court’s continuing
campaign to render the private cause of action under §10(b)
toothless.” Stoneridge , 552
U. S., at 175 ( Stevens , J.,
dissenting).
Notes