Extraterritoriality of Securities Laws: An Economic Analysis of Jurisdictional Conflicts
Schuster, Gunnar, Law and Policy in International Business
For many years jurisdictional conflicts in international economic law have been at the center of economic disputes between nations. Such conflicts have in turn attracted significant scholarly attention.(1) This is especially true in the field of antitrust law.(2) Jurisdictional conflicts have also arisen, or can be expected to arise, in other areas of law, including civil rights law(3) export control legislation(4) waste export controls(5) and in RICO Act applications.(6) Jurisdictional conflicts also have a long tradition in the economically important field of securities law.(7) These conflicts have usually involved the United States and European states or offshore capital market states. The U.S. Court of Appeals for the Second Circuit, in adjudicating many of these disputes, has applied an expansive view of U.S. jurisdictional reach. Other countries dislike this approach. Many critics, however, overlook the fact that the European Court of Justice has also broadly applied the competition laws of the European Economic Community. German courts have also rendered judgments that have had extraterritorial effects.
The internationalization of capital markets(8) has led to conflicts(9), mainly in the areas of insider trading, fraud claims, registration and disclosure laws, margin requirements and takeover regulations, as well as others. This Article seeks to provide an economic analysis of jurisdictional conflicts. In addition, an effort will be made to demonstrate how possible solutions to these jurisdictional disputes respond to efficiency requirements. A review of the decisions resolving these conflicts will not be undertaken,(10) nor will this Article engage in a detailed discussion of how the relevant rules of public international law apply to these conflicts.(11) Economic analysis, although not widely utilized in international law(12) can prove helpful in explaining some instances of state behavior.(13) For example, jurisdictional doctrines can be evaluated based on their relation to efficiency. Game theory models can also be applied to determine the results obtained from an application of positive economic analysis to different problems. Both methods should yield useful information, if the underlying assumptions are logically consistent.
II. TWO ILLUSTRATIVE CASES
Two recent cases concerning the extraterritorial application of U.S. securities laws are discussed below to illustrate the types of conflicts that will later be analyzed.
A. Consolidated Gold Fields Plc. v. Minorco's S.A.(14)
This case concerned an attempted hostile takeover of a British corporation, Consolidated Gold Fields, by a Luxembourg holding company, Minorco, S.A.. U.S. residents held 2.5 percent of the outstanding shares of Consolidated Gold Fields.(15) Of these shares, only 0.025 percent were held directly, while the rest were held indirectly through nominee accounts in the United Kingdom or through the ownership of American Depositary Receipts.(16) The total value of these shares was approximately 120 million U.S. dollars. The undisclosed background of the attempted takeover engendered the dispute. The takeover was initiated by the Oppenheimer family from South Africa, which allegedly indirectly controlled Minorco. The strategy of the Oppenheimer family was to acquire the twelve percent market share of the western hemisphere gold market which Consolidated Gold Fields and its subsidiaries controlled.(17) Minorco already controlled twenty percent of the gold market in the western hemisphere. At the time the tender offer was made, Minorco represented that the offer "is not being made directly or indirectly in, or by use of the mails or by any means or instrumentality of interstate commerce or of any facility of a national securities exchange of, the United States of America . . ."(18) All direct contacts with U.S. shareholders, which would have the effect of bringing the transaction under the rubric of U. …