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Difference between revisions of "SEC Whistleblower Program"
→The Conduct-and-Effects Test
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#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 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. See [https://www.law.cornell.edu/uscode/text/15/77v 15 U.S.C. § 77v(c)] | #conduct occurring outside the United States that has a foreseeable substantial effect within the United States. See [https://www.law.cornell.edu/uscode/text/15/77v 15 U.S.C. § 77v(c)] | ||
=='''SEC Enforcement Action Against International Ponzi Scheme'''== | |||
On January 24, 2019, in [https://www.sec.gov/litigation/litreleases/2016/lr23604.htm SEC v. Scoville], the United States Court of Appeals for the Tenth Circuit held (see opinion below) that Congress, in enacting the Dodd-Frank Act’s amendments to the jurisdictional provisions of the securities laws, “undoubtedly intended that the substantive antifraud provisions should apply extraterritorially when the statutory conduct-and-effects test is satisfied.” The Tenth Circuit proceeded to apply the test to a [https://www.sec.gov/litigation/complaints/2016/comp23604.pdf $207 million international Ponzi scheme], which had 90% of its customers outside the United States. The Ponzi scheme involved the sales of investment contracts by Traffic Monsoon, LLC, whose sole owner and member is Charles Scoville. The Tenth Circuit found that the Defendant’s actions satisfied the conduct-and-effects test because: | |||
#The Defendant’s company was located in the United States. | |||
#Through his company, the Defendant created and promoted the investments over the internet while residing in the United States. | |||
#The servers housing the company’s website were physically located in the United States. | |||
The Tenth Circuit is the first Circuit Court to address the scope of the SEC’s extraterritorial enforcement authority under the Dodd-Frank Act. The opinion highlights the SEC’s expansive international reach against fraudsters. For additional analysis of the Tenth Circuit’s opinion, see a recent article in the Harvard Law School Forum on Corporate Governance and Financial Regulation, [https://corpgov.law.harvard.edu/2019/06/09/a-new-era-of-extraterritorial-sec-enforcement-actions/ A New Era of Extraterritorial SEC Enforcement Actions.] In November 2019, the U.S. Supreme Court [https://news.bloomberglaw.com/securities-law/high-court-denies-review-in-sec-fraud-extraterritoriality-case declined to review the case.] | |||