Securities fraud has increasingly become a global economic problem. It is endemic in many domestic markets, such that its aggregate impact, calculated globally, is significant.1 Furthermore, as a result of the growth in foreign exchange listings, global securities offerings, and cross-border investment activity, securities fraud perpetrated in one market often affects others. The regulatory community has developed a range of mechanisms that explicitly address securities fraud as a global issue. These include cooperation and coordination instruments such as bilateral memoranda of understanding between regulatory agencies, as well as the work of multilateral organizations such as the International Organization of Securities Commissions.2 In addition, and increasingly, private litigation-particularly in U.S. courts3-functions as a tool to combat international securities fraud.
The use of private enforcement in U.S. courts to address cross-border fraud has proved complicated. This is not surprising: Rule 10b-5 under the Securities Exchange Act of 1934 (Exchange Act), which serves as the basis for most private fraud litigation, creates only an implied cause of action and therefore contains no legislative guidance concerning its application in cases with foreign elements. The most fundamental issue in cross-border cases-the extent of the reach of U.S. securities laws-therefore remains disputed.4 In addition, the deployment of both express and implied rights of action in the cross-border context often creates significant jurisdictional and procedural complications. Courts addressing cross-border securities cases have grappled with questions such as the advisability of using prudential doctrines such as forum non conveniens to dismiss predominantly foreign cases;5 the availability of judicial assistance to foreign courts when parallel litigation is underway in another country;6 and the appropriateness of certifying plaintiff classes that include investors from countries that do not themselves permit class actions.7 This Article considers another such issue: the circumstances under which the directors of foreign companies may be subject to the personal jurisdiction of U.S. courts.8
When a foreign company participates in U.S. capital markets, its directors assume certain governance responsibilities related to that participation. As a consequence, they face potential liability under U.S. law for failures to fulfill those responsibilities. Like the directors of U.S. companies, then, foreign directors may be sued by private plaintiffs seeking monetary damages in civil litigation. Unlike their U.S. counterparts, however, foreign directors are not always subject to the personal jurisdiction of U.S. courts. In the context of cross-border fraud, jurisdictional law therefore creates a barrier to the use of private litigation in enforcing director accountability requirements.
Part II of this Article sketches out the governance obligations assumed by the directors of foreign companies that engage in U.S. securities activity, and the potential liability of those directors under the securities laws. Part III then turns to the law governing personal jurisdiction of foreign defendants in U.S. courts, and examines its application in the context of securities litigation. It identifies some inconsistencies in how courts have applied jurisdictional standards to cross-border securities cases, traceable in part to the fundamental vagueness of the constitutional due process requirements underpinning those standards. The Article then explores the tension between jurisdictional law and the enforcement goals reflected in the securities laws, and, in Part IV, considers three possible ways to reduce that tension. It ultimately proposes that courts adopt jurisdictional presumptions designed to reflect Congress' intent in imposing certain express accountability requirements upon directors. These presumptions, I argue, will satisfy the due process protections embodied in jurisdictional law, while bringing that law into better alignment with regulatory expectations regarding the responsibility of corporate directors for an issuer's securities activity. …