Proskauer Rose Discusses the SEC’s Extraterritorial Reach

A federal court in Utah recently held that the Securities and Exchange Commission may bring an enforcement action based on allegedly foreign securities transactions involving non-U.S. residents if sufficient conduct occurred in the United States.

The March 28, 2017 ruling in SEC v. Traffic Monsoon, LLC (D. Utah) appears to be the first decision squarely resolving whether the Dodd-Frank Act succeeded in allowing the Government to pursue such claims. The court recognized that the Act’s grant of “jurisdiction” to federal courts over enforcement actions relating to non-U.S. securities transactions had inartfully responded to the Supreme Court’s ruling in Morrison v. Read more

Proskauer Discusses Due-Process Issues in Shareholder Derivative Actions

The Delaware Supreme Court requested further consideration of the federal due-process issues that might arise where a court is asked to hold that a shareholder derivative action is precluded because a prior derivative action was dismissed based on the first plaintiff’s failure to make a demand on the company’s board before filing suit.  The Court’s January 18, 2017 decision in California State Teachers’ Retirement System v. Alvarez squarely focuses on an issue that has been raised several times in the Delaware Court of Chancery:  whether federal due-process principles prevent the actions of a named plaintiff in a derivative action from … Read more

Proskauer explains Supreme Court’s Clarification of Jurisdiction Under Securities Exchange Act

The U.S. Supreme Court ruled on May 16, 2016 that the provision of the Securities Exchange Act of 1934 granting federal district courts exclusive jurisdiction over suits brought to enforce the Exchange Act is subject to the same jurisdictional test established by the general federal-question jurisdictional statute. The Court held in Merrill Lynch v. Manning that, under both statutes, the question is whether the case “arises under a federal law.” The Court thus rejected the defendants’ effort to remove a case from state court by asserting a broader theory of federal jurisdiction under the Exchange Act.

Factual Background

The ManningRead more

Proskauer discusses the D.C. Circuit’s Rejection of District Court Challenges to Pending SEC Administrative Enforcement Proceedings

The U.S. Court of Appeals for the District of Columbia Circuit held that federal District Courts do not have subject-matter jurisdiction to entertain challenges to ongoing SEC administrative enforcement proceedings. A party to a pending administrative proceeding must defend against that proceeding and then seek review from the SEC Commissioners and, eventually, the federal appellate courts.

The D.C. Circuit’s decision in Jarkesy v. SEC follows the Seventh Circuit’s August 2015 decision in Bebo v. SEC in rejecting preemptive constitutional attacks on pending SEC administrative proceedings. In a potentially significant sentence, however, the D.C. Circuit observed that “[t]he result might be … Read more

Proskauer discusses Supreme Court’s Omnicare Decision, Clarifying Liability for Statements of Opinion in Registration Statements

The U.S. Supreme Court ruled today that a statement of opinion in a registration statement cannot be actionable as a misstatement of fact under § 11 of the Securities Act of 1933 if the issuer actually believed the opinion expressed. However, the statement of opinion can be actionable on an omissions theory if the registration statement omits material facts about the issuer’s inquiry into, or knowledge about, the statement of opinion and if those omitted facts conflict with what a reasonable investor would have expected from a contextual reading of the statement of opinion.

The Supreme Court’s decision in Omnicare, Read more

Proskauer discusses Halliburton Case

The U.S. Supreme Court declined to abandon the efficient-market theory, with its rebuttable presumption of reliance that enables securities class actions to proceed without proof of actual reliance on alleged misrepresentations or omissions. However, the Court’s ruling in Halliburton Co. v. Erica P. John Fund, Inc. allows defendants to try to show at the class-certification stage that the alleged misrepresentations did not in fact affect the price of the securities at issue.

The Halliburton decision is likely to increase the complexity, importance, and expense of class-certification proceedings and could influence both sides’ settlement strategies in securities class actions.

The Efficient-Market Read more