Vol. 45 No. x x, 2012

∗ ALEX C. LAKATOS is a partner at Mayer Brown LLP in Washington, D.C. Mayer Brown LLP is an international law firm with offices in over 20 cities worldwide. His e-mail address is alakatos@mayerbrown.com. The author would like to thank his partners Marc R. Cohen and Thomas J. Delaney for their assistance with this article.

IN THIS ISSUE

● EXTRATERRITORIAL SECTION 10(B) CLASS ACTIONS AFTER MORRISON

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EXTRATERRITORIAL SECTION 10(B) CLASS ACTIONS AFTER MORRISON

In Morrison, the Supreme Court held that Section 10(b) of the Exchange Act applies only to “transactions in securities listed on domestic [U.S.] exchanges, and domestic [U.S.] transactions in other securities.” The Dodd-Frank Act effected a complete legislative repeal of Morrison for SEC actions, but also required the SEC to study whether the repeal should be extended to private actions. The author argues that such an extension would be a bad idea.

By Alex C. Lakatos *

EVOLUTION OF THE LAW

Pre-Morrison law

Section 10(b) of the Securities Exchange Act of 1934, Manipulative and Deceptive Devices, provides that it shall be unlawful “[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.”1 Section 10(b) is silent as to its extraterritorial reach. Generally, U.S. courts will not read a statute to have extraterritorial application unless the statute expressly states that it is meant to apply extraterritorially. But in the Section 10(b) context, many lower U.S. courts were concerned about the possibility that a securities fraud centered abroad might

nevertheless harm U.S. investors, and thus adopted rules to implement “what Congress would have wished if these problems had occurred to it.”

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1 15 U.S.C. § 78j(b).

2 The U.S. Court of Appeals for the Second Circuit, for example, developed the “conduct” and “effects” tests to determine when Section 10(b) would apply in cases of transnational securities fraud. The effects test allows for the application of Section 10(b) based upon the effect of a defendant’s allegedly fraudulent statements within the United States, e.g., the effects test generally supports application of Section 10(b) if U.S. investors were induced to purchase securities as a result of defendant’s fraudulent statements, even if the statements were made outside of the United States. Conversely, the conduct test supports the application of Section 10(b) based upon alleged wrongful conduct by the defendant in the United

2 Bersch v. Drexel Firestone, Inc., 519 F.2d 974, 993 (2d Cir. 1975).

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States, even if the plaintiff’s injury occurs outside the United States (e.g., plaintiff purchased securities on a non-U.S. market).

The conduct and effects tests, however, proved complex and difficult to apply. For example, under the conduct test, how much U.S. “conduct” would be enough to support application of Section 10(b)? “The chronic difficulty . . . has been describing, in sufficiently precise terms, the sort of conduct occurring in the United States that ought to be adequate to trigger American regulation of the transaction.”3 Some courts allowed non-U.S. investors who purchased shares on non-U.S. markets to bring claims under Section 10(b) in U.S. courts based on the conduct test where “the defendant’s activities in the United States were more than ‘merely preparatory’ to a securities fraud conducted elsewhere,” and “these activities or culpable failures to act within the United States ‘directly caused’ the claimed losses.”4 Other courts allowed non-U.S. investors to sue for losses on non-U.S. markets “where defendants’ conduct in the United States was in furtherance of a fraudulent scheme and was significant with respect to its accomplishment.”5 The Second Circuit itself recognized that application of its standard “can be an involved undertaking.”6 One district judge noted that “any notion that a single precedent or cohesive doctrine may be found which may apply to dispose of all jurisdictional controversies in this sphere is bound to prove as elusive as the quest for a unified field theory explaining the whole of the physical universe.”7 Likewise, the district

judge in Morrison observed that although “articulation of the conduct test is easy, its application is not . . . . The complexity of the required analysis means that individual cases are decided on very fine distinctions.”

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3 Kauthar SDN BHD v. Sternberg, 149 F.3d 659, 665 (7th Cir. 1998).

4 Itoba Ltd. v. LEP Grp. PLC, 54 F.3d 118, 122 (2d Cir. 1995) (quoting Bersch v. Drexel Firestone, Inc., 519 F.2d 974, 987 (2d Cir. 1975) and Alfadda v. Fenn, 935 F.2d 475, 478 (2d Cir. 1991)).

5 Cont’l Grains (Austl.) Pty. Ltd. v. Pac. Oilseeds, Inc., 592 F.2d 409, 421 (8th Cir. 1979).

6 Morrison v. Nat’l Austl. Bank Ltd., 547 F.3d 167, 174 (2d Cir. 2008), aff’d 130 S. Ct. 2869.

7 In re Alstom SA Sec. Litig., 406 F. Supp. 2d 346, 375 (S.D.N.Y. 2005).

8 In Morrison itself, dispute over the conduct test led to years of costly litigation before the Supreme Court ultimately resolved the issue.

The Morrison decision

Morrison involved what is known as a “foreign-cubed” or “F-cubed” fact pattern: (1) plaintiffs were all foreign persons (2) who purchased the shares of a foreign securities issuer (3) on a foreign market.9 Plaintiffs nevertheless argued that their securities fraud claims against National Australia Bank (“NAB”) should be heard in U.S. federal court pursuant to Section 10(b). Plaintiffs relied on the conduct test, alleging that NAB’s U.S. subsidiary, a mortgage service provider (Homeside Lending, Inc.), acting in the United States, intentionally overvalued its mortgage portfolio to inflate earnings targets, and then transmitted the allegedly fraudulent financial information to NAB in Australia, where NAB incorporated the data into consolidated financial reports that NAB made publicly available. After NAB disclosed problems with Homeside’s mortgage portfolio, NAB’s shares declined in value, allegedly causing plaintiffs’ losses.

The Supreme Court in Morrison rejected the conduct and effects tests as the proper means to determine when Section 10(b) applies in cases of transnational securities fraud. The Court interpreted Section 10(b) by applying the “presumption against extraterritoriality,” a canon of construction pursuant to which the Court presumes that “legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States.”10 Because Section

8 In re Nat’l Austl. Bank Sec. Litig., No. 03 Civ. 6537, 2006 WL 3844465, at *3-*4 (S.D.N.Y. Oct. 25, 2006) (internal citations omitted), aff’d Morrison, 547 F.3d 167.

9 Morrison v. Nat’l Austl. Bank, Ltd., 130 S. Ct. 2869, 2894 n.11 (2010).

10 EEOC v. Arabian Am. Oil Co., 499 U. S. 244, 248 (1999) (internal quotation marks omitted).

10(b) says nothing about its extraterritorial application, the Court concluded that – under the presumption against extraterritoriality – Section 10(b) applies only to “transactions in securities listed on domestic [U.S.] exchanges, and domestic [U.S.] transactions in other securities.”11 Plaintiffs in Morrison had bought shares that were publicly listed on a non-U.S. exchange, and thus, could not bring claims under Section 10(b). Moreover, the Morrison rule, which was based on the Court’s statutory interpretation of Section 10(b), would apply equally to the SEC and private plaintiffs alike.12

In further support of its decision curtailing the extraterritorial reach of Section 10(b), the Court noted the “probability of incompatibility with the applicable laws of other countries,” if Section 10(b) were interpreted to govern the conduct of securities issuers acting outside the United States.13 The Court favorably cited amicus briefs filed by, among others, the Institute of International Bankers, the European Banking Federation, the Swiss Bankers Association, and the Australian Bankers’ Association, which “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.”14 The new test announced in Morrison, the Court correctly concluded, “meets that requirement.”15

Post -Morrison case law

Morrison has greatly simplified the law governing the application of Section 10(b), and in most instances, lower courts have had little difficultly applying it. First, courts consistently have dismissed F-cubed claims, including those which, like the claims in Morrison, involve allegations of some predicate conduct in the United States or have some other connection to the United States.16 Second, courts have dismissed Section

10(b) claims by investors located in the United States who purchased or sold foreign securities on foreign exchanges.

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11 130 S. Ct. at 2884. 12 See, e.g., SEC v. Goldman Sachs & Co., 790 F.Supp.2d 147,

158-59 (S.D.N.Y. 2011) (applying Morrison to dismiss civil fraud claims brought by the SEC based on pre-Dodd Frank conduct).

13 Id. at 2885. 14 Id. at 2886. 15 Id. 16 See, e.g., In re Merkin, No. 08-cv-10922, 2011 WL 4435873, at

*9 n.10 (S.D.N.Y. Sept. 23, 2011); In re UBS Sec. Litig., No. 07-cv-11225, 2011 WL 4059356 (S.D.N.Y. Sept. 13, 2011); Terra Sec. Asa Konkursbo v. Citigroup. Inc., 740 F. Supp. 2d

17 Third, courts have held that Section 10(b) does apply to transactions in American Depository Receipts (“ADRs”) – negotiable certificates that confer an ownership interest in securities of a foreign issuer and that generally can be exchanged for those securities18 – that trade on U.S. exchanges.19 Presented with different facts, another court held that Morrison barred Section 10(b) claims by purchasers of ADRs in the over-the-counter market.20 In concluding that such “[t]rade in ADRs is considered to be a predominantly foreign securities transaction,” the court emphasized that the ADRs at issue were not traded “on an official American securities exchange,” but rather “in a less formal market with lower exposure to U.S.-resident buyers.”21

Although private transactions that do not occur on any securities exchange may present a thornier issue, at least one court has devised a rule that is both fair and clear for those transactions as well. In Elliott Associates v. Porsche Automobil Holding SE,22 now on appeal to

footnote continued from previous column…

441, 447 (S.D.N.Y. 2010), aff’d No. 10-4712-cv, 2011 WL 6067260 (2d Cir. Dec. 7, 2011); In re Banco Santander Sec.-Optimal Litig., 732 F. Supp. 2d 1305, 1317, 1318 (S.D. Fla. 2010), aff’d sub nom. Inversiones Mar Octava Limitada v. Banco Santander S.A., No. 10-14012, 2011 WL 3823284 (11th Cir. Aug. 30, 2011).

17 See, e.g., In re UBS Sec. Litig., 2011 WL 4059356); In re Vivendi Universal, 765 F. Supp. 2d 512, 533 (S.D.N.Y. 2011); In re Royal Bank of Scotland Group PLC Sec. Litig., 765 F.Supp.2d 327, 339 (S.D.N.Y. 2011); Cornwell v. Credit Suisse Grp., 729 F. Supp. 2d 620, 624 (S.D.N.Y. 2010); In re Celestica Inc. Sec. Litig., No. 07-cv-312, 2010 WL 4159587 (S.D.N.Y. Oct. 14, 2010); Plumbers Union Local No. 12 Pension Fund v. Swiss Reinsurance Co., 753 F.Supp.2d 166, 178 (S.D.N.Y. 2010); In re Société Générale Sec. Litig., No. 08 Civ. 2495, 2010 WL 3910286, at *5-*6 (S.D.N.Y. Sept. 29, 2010); In re Alstom SA Sec. Litig., 741 F. Supp. 2d 469 (S.D.N.Y. 2010).

18 See 1 Edward F. Greene et al., U.S. Regulation of the International Securities and Derivatives Markets § 2.02[1], at 2-19 (9th ed. 2008).

19 See, e.g., Stackhouse v. Toyota Motor Co., No. 10-cv-0922, 2010 WL 3377409 (C.D. Cal. July 16, 2010).

20 In re Société Générale Sec. Litig., 2010 WL 3910286, at *6. 21 Id. at *6 (quoting Copeland v. Fortis, 685 F. Supp. 2d 498, 506

(S.D.N.Y. 2010)). 22 759 F. Supp. 2d 469 (S.D.N.Y. 2010).

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the Second Circuit (argued on February 24, 2012), the district court dismissed Section 10(b) claims filed by hedge funds that had purchased security-based swaps – contracts whereby one party agrees to make payments to the other party based on changes in the stock price of a “reference” security – in private transactions that did not occur on a securities exchange. The court concluded that the hedge funds’ swaps, which referenced the price of Volkswagen shares that traded on German markets, “were the functional equivalent of trading the underlying VW shares on a German exchange” and, therefore, the “economic reality” is that such swaps are “essentially transactions conducted upon foreign exchanges and markets, and not domestic transactions that merit the protection of [Section] 10(b).”23 On appeal, amici including the European Bankers Federation and the German Issuers argued that the district court’s decision was correct not only because the VW securities referenced were not U.S. securities, but also because the alleged wrongful conduct of Porsche occurred abroad.24 The Second Circuit will likely decide the case in 2012.

The Dodd-Frank Act

Morrison was decided on June 24, 2010. Shortly thereafter, the Dodd-Frank Act was signed into law on July 21, 2010.25 Two sections of the Dodd-Frank Act expressly addressed Morrison.

First, Section 929P of the Act addressed the SEC’s authority to bring Section 10(b) claims in cases of transnational securities fraud. The Dodd-Frank Act partially revoked the Morrison rule with respect to cases brought by the SEC and instead substituted a conduct and effects tests. Specifically, it amended the Securities Exchange Act to allow federal courts to consider SEC enforcement actions under Section 10(b) involving either “conduct within the United States that constitutes significant steps in furtherance of the violation, even if the securities transaction occurs outside the United States and involves only foreign investors” or ‘‘conduct occurring outside the United States that has a foreseeable substantial effect within the United States.”26

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23 Id. at 476 (internal quotation marks omitted). 24 Brief for Federation of German Industries et al. as Amici

Curiae Supporting Defendants-Appellees, Viking Global Equities v. Porsche Automobil Holding, SE (2d Cir.) (No. 11-0397-cv(L)).

25 Pub. L. No. 111-203, 124 Stat. 1376. 26 § 929P(b)(1), b(2).

Second, although the Dodd-Frank Act left Morrison intact insofar as private litigants are concerned, Section 929Y directed the SEC to “conduct a study to determine the extent to which private rights of action” under Section 10(b) should be extended beyond the bounds set by the Morrison decision, i.e., whether Congress should fully reverse Morrison.27 Section 929Y further instructs the SEC to consider in its study the proper scope of the private cause of action, the extent to which it should be applied extraterritorially, the implications of such a private right of action on international comity, and the economic costs and benefits of extending the private cause of action for securities fraud.

WHY THE SEC AND CONGRESS SHOULD RESPECT THE MORRISON RULE

Comity among Nations

Revoking Morrison in favor of expanding the U.S. private liability anti-securities fraud regime extraterritorially would be injurious to comity between the United States and its fellow sovereign nations. This is not just a matter of principle, but also of practical concern. Nations other than the United States that play host to leading securities exchanges (e.g., EU member states, Switzerland, Japan) are not known as havens for fraud. To the contrary, such countries have a solid track record of deterring and remedying securities fraud. Investors make an economic vote of confidence in major non-U.S. securities markets every day. Thus, there is no need to apply U.S. securities fraud law extraterritorially. Moreover, doing so risks undermining other nations’ efforts to prevent and redress securities frauds. For example, a non-U.S. government where securities fraud occurred may wish to offer a particular corporate officer leniency in exchange for cooperation, or to prosecute and remove from management individual wrongdoers while limiting corporate liability (perhaps due to concern for the financial health of an important domestic employer). Either way, U.S. class action plaintiffs could thwart those objectives if U.S. law permitted them to hijack such actions into U.S. federal court, where plaintiffs may be able to impose their own views as to who should be liable, regardless of the carefully crafted enforcement priorities of the foreign nation where the transactions occurred. Resolving securities frauds locally makes the most sense because local authorities and courts are best positioned to apply their own law, in their own language, mindful of their own culture. They also are best positioned to compel testimony of key witnesses, mandate collection of vital documents, and

27 § 929Y(a).

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assess the losses of victims who are predominantly their own nationals.

Accordingly, in response to the SEC call for public comments on the study mandated by the Dodd-Frank Act, numerous non-U.S. governments – including the governments or securities regulators of Australia, the EU, France, Germany, Israel, Switzerland, and the UK – wrote to the SEC, supporting the Morrison rule and protesting the extraterritorial application of the U.S. anti-securities fraud regime on grounds of comity. France, for example, explained:

The well-settled principle of international comity requires foreign nations to avoid unreasonable interference with the sovereign authority of other nations.… The extraterritorial application of U.S. securities regulations to transactions that take place outside the United States is not consistent with the foregoing principles.… [I]t would be unreasonable for the U.S. to exercise jurisdiction over securities transactions that take place on foreign markets between foreign parties.28

“Foreign nations,” France explained, “have a primary interest in protecting their citizens and residents, punishing their wrongdoers, and regulating their exchanges. Application of U.S. law to foreign securities transactions would undermine those interests and conflict with the regulatory policies and legal systems of other nations.”29

When it comes to offending U.S. friends and allies, exporting the U.S. securities fraud regime is particularly problematic because the U.S. substantive law set forth in Section 10(b) arrives on foreign shores wrapped in U.S. procedural mechanisms, particularly class actions and broad pretrial discovery, that are widely disfavored and even derided outside the United States. For example, the EC has stated that the U.S.-style class action (featuring contingency fees for plaintiffs’ attorneys, an absence of fee shifting between winning and losing parties, and an opt-out, rather than an opt-in, rule for accruing class members) is a “‘toxic cocktail’ [that] should not be

introduced in Europe.”

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28 Letter from Catherine Bergeal, La-Directrice de Affaires Juridiques, Government of France, to Mary L. Schapiro, Chairman, SEC, at 2 (Feb. 17, 2011) (internal quotation marks omitted), available at http://www.sec.gov/comments/4 617/4617.shtml

- -.

29 Id.

30 A committee of the European Union similarly “rejected the features of US-style ‘class actions,’ which are incompatible with [the EU’s approach].”31 As for U.S. discovery: “[n]o aspect of the extension of the American legal system beyond the territorial frontier of the United States has given rise to so much friction as the requests for documents in investigation and litigation in the United States.”32 The UK (in its amicus brief in Morrison) similarly explained that “the panoply of procedural rules and remedies that accompany litigation in federal courts under U.S. securities laws creates a very different environment for the commencement, prosecution and settlement of lawsuits than exists in other jurisdictions,” and “[a]pplication of U.S. securities laws brings with it the full force of the U.S. legal system and real conflicts with other legal systems.”33

Extraterritorial Section 10(b) actions by the SEC – for which the Dodd-Frank Act opened the door – also may be injurious to comity among nations, and the SEC should be judicious in using the authority the Dodd-Frank Act restored to it. But SEC actions pose far less risk. For one thing, the SEC values maintaining good relations with its non-U.S. counterparts. As Commissioner Kathleen Casey has explained, “national regulators . . . need cooperative relationships and coordination with other jurisdictions if they are to be effective in regulating and overseeing their markets.”34 And former SEC Chairman Christopher Cox has remarked that “[e]nforcement . . . has always been the bread and butter of international securities regulatory

30 Press Release, Europa, Green Paper on Consumer Collective Redress - Questions and Answers, Memo/08/741, ¶ II.9 (Nov. 27, 2008), available at http://europa.eu/rapid/ pressReleasesAction.do?reference=MEMO/08/741&format=HTML&aged=0&language=EN&guiLanguage=en.

31 Opinion of the European Economic and Social Committee on Defining the Collective Actions System and Its Role in the Context of Community Consumer Law (Own Initiative Opinion), 2008/C 162/01 , ¶ 1.6, available at http://eurlaw.eu/EN/Opinion European Economic Social CommitteeDefining collective actions,474463,d

-- - - - -

- - . 32 Restatement (Third) of Foreign Relations Law, § 442, reporters’

note 1 (2011). 33 Brief of United Kingdom of Great Britain & N. Ireland as

Amicus Curiae in Support of Respondents. 34 Kathleen L. Casey, Comm’r, SEC, Address at Instituto Bruno

Leoni, The Role of International Regulatory Cooperation and Coordination in Promoting Efficient Capital Markets (June 12, 2010).

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cooperation.”35 Thus, the SEC is more likely than plaintiffs’ attorneys to be respectful of the interests and objectives of other nations.

Double or Inconsistent Recoveries

The dim view of U.S. class actions that many European nations take creates yet another risk: double liability. Many European nations do not recognize opt-out class actions as binding on their citizens, even if the United States would deem those persons to be class members bound by the outcome of the action. This means that if a defendant prevails in a U.S. class action, absent European class members could take another bite at the apple in their home country, depriving the defendant of hard won finality. And, if a defendant loses a U.S. class action, the defendant could be required to pay some class members yet again, pursuant to a separate European action. The Morrison rule minimizes this problem by channeling securities litigation to the markets where the securities were traded.

U.S. enforcement objectives

As noted above, the SEC appreciates and relies upon the cooperation of other nations’ security enforcement authorities to meet its enforcement objectives. Indeed, the SEC has entered into cooperation agreements with such authorities in the EU and throughout the world.36 These agreements are effective, allowing, by way of example, the SEC to obtain information located in Switzerland, including detailed banking information, from the Swiss Financial Market Supervisory Authority, FINMA. Historically, friends and allies of the United States have stood ready and willing to aid the SEC when asked. For example, the Financial Services Authority, the regulator of the financial services industry in the UK, assisted the SEC in its 2009 investigation concerning an emergency action to stop sales agents based in Europe who were making alleged fraudulent stock sale calls to residents of the UK, Germany, and other European countries. In 2010, French authorities assisted the SEC’s investigation of alleged false disclosures regarding the

Vivendi Universal’s liquidity.

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35 Christopher Cox, Chairman, SEC, Address to the American Institute of Certified Public Accountants’ International Issues Conference, International Business – An SEC Perspective (Jan. 10, 2008), available at http://www.sec.gov/news/speech/ 2008/ spch011008cc.htm.

36 See SEC, Office of International Affairs, Cooperative Arrangements with Foreign Regulators (http://www.sec.gov/about/offices/oia/oia_cooparrangements.shtml).

37 But the SEC may find that its non-U.S. counterparts are less enthusiastic about providing this type of support if the SEC supports return to the pre-Morrison extraterritorial application of U.S. securities laws for private actions to which they have expressly objected.

Foreign Direct Investment

A 2006 study sponsored by Senator Charles E. Schumer and Mayor Michael R. Bloomberg concluded that “the increasing extraterritorial reach of US law” was a “significant factor[] that caused” U.S. markets to be less competitive than their peers.38 If the United States reverts to the pre-Morrison approach – allowing extraterritorial application of Section 10(b) based on some ill-defined quantum of U.S. conduct or effects – then non-U.S. corporations may decide that it makes more sense to invest elsewhere. In Morrison, for example, NAB endured years of costly litigation under the conduct test, with plaintiffs arguing that the conduct of NAB’s U.S. subsidiary was sufficient to support application of Section 10(b) notwithstanding that the plaintiffs were Australians who had purchased shares of an Australian issuer in Australia. Reverting to the conduct and effect tests thus may chill other would-be investors from doing what NAB did, i.e., purchasing a U.S. subsidiary. Revoking Morrison for private actions would therefore be bad economic policy for the United States.

Similarly, revoking Morrison for private actions may discourage non-U.S. issuers from availing themselves of the U.S. capital markets. This is not because non-U.S. issuers would object to the prospect of having their shares that are sold on U.S. markets being subject to Section 10(b). This is because non-U.S. issuers likely would object to having all their shares throughout the world become subject to Section 10(b), merely because they have listed a few of their shares on a U.S. exchange. This is more than a theoretical risk. In a pre-Morrison case, Itoba Limited,39 the court, applying the conduct test, held that a non-U.S. defendant’s filing of a Form 20-F in the United States for its ADRs traded on a U.S.

37 SEC, SEC Speaks in 2010, 1784 PLI/Corp. 519, 544-45 (2010). 38 Michael R. Bloomberg & Charles E. Schumer, Sustaining New

York’s and the US’ Global Financial Services Leadership 73 (Dec. 2006), available at http://www.abanet.org/buslaw/ committees/CL116000pub/materials/library/NY_Schumer-Bloomberg_REPORT_FINAL.pdf.

39 54 F.3d at 122-23.

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exchange was sufficient under the conduct test to permit non-U.S. investors, who had not bought ADRs (nor even read the Form 20-F), to pursue a Section 10(b) claim based on their purchase of the company’s ordinary shares on a London Exchange.

Furthermore, as described above, the conduct and effects tests were murky and difficult to understand, whereas the Morrison test, in most circumstances, creates a fairly bright line. “Predictability is valuable to corporations making business and investment decisions.”40 To the extent non-U.S. investors perceive the U.S. regime as a tangled morass that even U.S. judges struggle to understand and apply, it is one more reason for them to steer clear of U.S. investments.

THE SEC’S REPORT TO CONGRESS

To prepare its report on Morrison to Congress, the SEC solicited public comments, and, in response, received letters from numerous sources, including non-U.S. governments and leading trade associations,

———————————————————— ———————————————————— 40 Hertz Corp. v. Friend, 130 S. Ct. 1181, 1193 (2010).

supporting the Morrison rule.41 The SEC also received letters opposing the Morrison rule, typically from pension funds, hedge funds, and their trade associations. Lawyers and academics also weighed in on both sides of the issue. After receiving comment letters, the SEC met with persons and entities that had submitted comment letters, or that otherwise have an interest in the SEC’s report. One thing that is not clear from the public record, however, is whether the SEC has spoken directly with its counterparts in other countries to understand fully their concerns. That is certainly something the SEC should do if it wants its report to reach a credible conclusion. Another is to look at Morrison empirically and to consider its economic impact on foreign direct investment in the United States, as well as how Morrison has affected the performance of other countries’ markets. The SEC’s study was due to the Senate’s Committee on Banking, Housing, and Urban Affairs and the House’s Committee on Financial Services in January 2012, but as of this writing has not been submitted. When the report is submitted, it will fall to Congress to decide Morrison’s fate. ■

41 See http://www.sec.gov/comments/4-617/4-617.shtml.

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