Academic journal article William and Mary Law Review

Beyond Morrison: The Effect of the "Presumption against Extraterritoriality" and the Transactional Test on Foreign Tender Offers

Academic journal article William and Mary Law Review

Beyond Morrison: The Effect of the "Presumption against Extraterritoriality" and the Transactional Test on Foreign Tender Offers

Article excerpt


  A. The Basics
  B. Section 14(e) of the Exchange Act and
       Regulation 14E
  C. Foreign Companies and Tender Offers to the
       United States
  D. SEC Response to Foreign Disinterest
  A. The Exchange Act, Section 10(b) and Rule
       10b-5, and the "Conducts and Effects" Test
  B. Morrison v. National Australia Bank Ltd
    1. The Presumption Against Extraterritoriality
    2. The Transactional Test
    3. Post-Morrison Decisions
  A. Extension to the Exchange Act at Large
    1. Morrison's Expansive Language
    2. Applying the Transactional Test
  B. Defining Transaction and Determining Domesticity
  C. Policy: Respect for Foreign Legal Systems,
       SEC, and Congressional Intent
    1. Minimizing Foreign Law Conflicts and
       Supporting the SEC
    2. Promoting Congressional Intent


The world of securities fraud litigation was irrevocably altered on June 24, 2010. On that day, the Supreme Court decided Morrison v. National Australia Bank Ltd. and determined that no cause of action exists for f-cubed transactions--transactions with securities of a foreign company, on a foreign exchange, brought by foreign claimants--under section 10(b) of the Securities and Exchange Act of 1934 (Exchange Act) or its related regulations, namely Rule 10b-5. (1)

The intervening year witnessed an exploration of the boundaries imposed by this new Morrison doctrine, and thus far the courts have not imposed any significant limitations on the "presumption against extraterritoriality" espoused in Justice Scalia's Morrison majority opinion. (2) Although the courts, shareholders, and corporate insiders --both foreign and domestic--have remained focused on Morrison's repercussions for on-exchange securities fraud cases, few have analyzed the potential repercussions the Morrison doctrine holds for extra-exchange transactions, such as tender offers. (3)

Tender offers are public offerings made by an individual, group, or corporation to purchase shares of another target company. (4) Over the last three decades, the number of securities-based cross-border transactions has skyrocketed. (5) In fact, as of 2010, over 33 percent of "agreed transactions" involving U.S. public companies were structured as tender offers. (6) In order to continue the success of the U.S. capital markets and promote foreign interest in U.S. companies and shareholders, the Securities and Exchange Commission (SEC) has, since the 1980s, made a concerted effort to make the United States an attractive market for foreign investors, buyers, and traders. (7) To achieve this goal, the SEC has focused on lowering the transaction costs of doing business in the United States and with U.S. Shareholders. (8) The SEC's primary method for lowering transaction costs is a tiered exemption system. (9) This system permits parties defined as "foreign private issuers" to avoid some of the most costly registration requirements under the Exchange Act. (10)

In cases related to foreign securities before Morrison, U.S. courts generally applied either a "conducts" test, an "effects" test, or an amalgamated "conducts and effects" test to determine whether they possessed subject-matter jurisdiction over a securities violation. (11) Morrison overturned decades of precedent, established mostly by the Second Circuit, and installed a "transactional" test to determine whether a cause of action existed under section 10(b) and Rule 10b-5. (12) Although the analysis in Morrison was directed to fraud cases arising under section 10(b) of the Exchange Act, the language Justice Scalia employed in his majority opinion lends itself to a general application and theory of securities law.

This Note considers the implications of the Morrison doctrine and the "presumption against extraterritoriality" on cases arising under section 14(e) of the Exchange Act. …

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