Transnational Securities Fraud and the Extraterritorial Application of U.S. Securities Laws: Challenges and Opportunities

With globalization, securities markets have become increasingly interconnected, and securities fraud has frequently crossed borders, creating problems for national regulators seeking to deter and punish fraud. The United States’ well-developed private enforcement mechanism for securities fraud is very attractive to investors around the world who are harmed by transnational securities fraud, particularly those from countries where private enforcement mechanisms do not exist or fraud is under-regulated. The application of U.S. securities law to foreign investors, however, presents a number of challenges, creating the potential for both under and overregulation as well as possible conflict with the regulatory systems of other jurisdictions. This Article outlines the current law on extraterritorial application of the securities antifraud rules, including a number of important recent developments in the case law. It examines the challenges presented by the increasing globalization of financial markets, and provides a fresh perspective in the debate on the proper scope of the extraterritorial application of U.S. securities law. Ultimately, this article argues against further judicial limitations on the extraterritorial application of the securities laws, but urges the development of a multilateral agreement to address the numerous and significant challenges presented by transnational securities fraud.