Swapping In: Why the Ninth Circuit's Statutory Interpretations Best Protect American Investors From Overseas Violations of U.S. Securities-Trading Laws

Journal

UC Davis Business Law Journal

Volume

25

Issue

2

Abstract

The U.S. federal Commodity Exchange Act (“CEA”) and Securities Exchange Act of 1934 (“SEA”) regulate the trading of commodities and securities, respectively. While the Acts outlaw market manipulation and financial fraud, courts have struggled in determining whether they have acquired jurisdiction over these Acts. Namely, circuits disagree on whether the location of misconduct itself or the misconduct’s impact on investors should guide jurisdiction.

The U.S. Supreme Court has implored courts to focus on fraud’s impacts and to create clean and easy-to-use tests to determine jurisdiction. While the Ninth Circuit has adopted an “irrevocable liability” test that focuses on where a trade is executed, the Second Circuit has adopted an “extraterritoriality” test that considers the overall foreignness of a claim. The First and Third Circuits follow the “irrevocable liability” test, and New York, the nation’s financial core, follows the Second Circuit’s “extraterritoriality” test.

By scrutinizing legislative history and congressional hearings, the central meaning of the Supreme Court’s holding in Morrison v. National Australia Bank, the workability of Stoyas v. Toshiba Corp., and agency powers to interpret the Acts, this Comment will argue that other circuits, and even the Supreme Court, should follow the Ninth Circuit’s “irrevocable liability” test approach.

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