Because of the broad
jurisdiction American courts have asserted in cases arising under the
Securities Exchange Act of 1934, they have been called a Shangri-la for
“foreign-cubed” class actions with little connection to the United States. Over
the past forty years, the standards used by American courts to determine their
jurisdiction in international securities disputes have evolved, culminating in
the U.S. Supreme Court’s Morrison decision of 2010. The new transactional test promulgated in Morrison replaced all of its predecessor
tests, from a test measuring whether the conduct in question took place in the
United States to a test measuring whether the effects of the conduct were felt
in the United States, to a combined conduct-effects test. This new
transactional test is unsatisfactory, however, because depending on how it is
interpreted, it is either too narrow to protect American investors as Congress
intended in Section 10(b) of the Securities Exchange Act, or too broad to
resolve the ambiguities that plagued the conduct-effects test.
This Article
proposes a new effects test that will resolve ambiguities, protect American
investors, and refrain from asserting American judicial jurisdiction overseas
contrary to principles of international comity. Though the effects test would
not grant private parties a cause of action against violators operating in the
United States but who exclusively defraud those overseas, Congress has already
granted authority to federal agencies to pursue such bad actors. The effects
test is also in accordance with principles of other important jurisdictions,
such as the European Union, and could serve as a basis for an international
agreement on jurisdiction in international securities cases.