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Federal Court Finds Section 15(a) of the Exchange Act Only Applicable in Domestic Transactions

The US District Court for the Northern District of Illinois recently granted defendants’ motion to dismiss one count of a Securities and Exchange Commission complaint, finding that the registration requirement under Section 15(a) of the Securities and Exchange Act of 1934 (Exchange Act) did not apply to a foreign transaction.

The SEC charged certain defendants with having acted as brokers or dealers in connection with the foreign sales of stock without having been registered with the SEC pursuant to Section 15(a). Defendants moved to dismiss this claim arguing that because their activities did not involve the domestic sale of stock, they were not required to register under Section 15(a)(1). Defendants’ argument was largely based on the 2010 decision by the US Supreme Court in Morrison v. National Australia Bank Ltd., which found that Section 10(b) of the Exchange Act and Rule 10b-5 thereunder were not intended to provide a cause of action in federal courts for fraudulent conduct in connection with the sale of foreign securities, even if part of the fraudulent activities occurred in the United States. The Court in Morrison had held that the Exchange Act gave no indication that Congress intended it to have extraterritorial effect, and that whether a transaction was subject to Section 10(b) depended on whether it was a domestic or foreign transaction.

Here, defendants argued that because the regulatory purpose of Section 15(a) was virtually the same as that of Section 10(b), the same rationale should be applied and registration should only be required where a broker or dealer engaged in a domestic transaction. The SEC argued that unlike Section 10(b), Section 15 focuses on the “registration and regulation of brokers,” not the underlying securities transactions, and therefore does not implicate Morrison.

The District Court agreed with defendants and found that given the intent of the Exchange Act, and in light of Morrison, a broker’s failure to register under Section 15(a) was not actionable in cases where the ultimate transaction was foreign.

SEC v. Benger, No. 09 C 676 (N.D. Ill. Mar. 28, 2013).

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About this Author

Michael Rosensaft, white collar criminal litigator, Katten, New York Law Firm

Michael M. Rosensaft focuses his litigation practice on representing individuals and businesses in white collar criminal matters, regulatory enforcement matters, corporate internal investigations, insurance and health care fraud and complex civil litigation.

Prior to joining Katten, he served as an Assistant US Attorney for the Southern District of New York. In that capacity, Michael oversaw the investigation and prosecution of numerous criminal cases involving terrorism, international money laundering, export violations, bribery of foreign...

Elizabeth D. Langdale, Litigation Lawyer, Katten Muchin Law Firm

Elizabeth D. Langdale concentrates her practice in litigation and dispute resolution matters.