11 November 2010
The US Securities and Exchange Commission (SEC) is exercising its expanded extraterritorial jurisdiction to investigate US-based firms for conduct occurring in connection with foreign securities and on foreign exchanges.
Section 929P of the Dodd-Frank Act makes it easier for the SEC to overcome jurisdictional hurdles in investigations and enforcement actions involving conduct and actors outside its traditional jurisdiction. The Dodd-Frank Act grants federal district courts jurisdiction over SEC actions charging federal securities violations where (i) conduct within the United States constitutes a significant step in furtherance of a violation, even if the transaction occurs outside the United States and involves only foreign investors, or (ii) conduct occurring outside the United States has a foreseeable substantial effect within the United States.
The SEC’s recent subpoena of Tiger Asia Management LLC—a New York-based hedge fund that invests in Asian markets—appears to be an exercise of that new authority. In a letter to its investors dated October 12, 2010, Tiger Asia revealed that the SEC had subpoenaed the firm’s trading records and other documents. The SEC subpoena follows insider-trading allegations by the Hong Kong Securities and Futures Commission (SFC).
In August 2009, the SFC sought an injunction from the Hong Kong High Court to freeze Tiger Asia’s assets based on allegations that the firm had engaged in insider dealing and market manipulation involving China Construction Bank Corp. Specifically, the SFC alleged that a Tiger Asia hedge-fund manager was given confidential details of a placement of Bank of China Ltd. shares and Tiger Asia then proceeded to short-sell Bank of China shares before the placement. In April 2010, the SFC sought to ban Tiger Asia from trading securities and derivatives listed on the Hong Kong exchange—the first time the SFC had ever sought such a prohibition.
The SEC’s subpoena demonstrates that it has embraced its newly expanded extraterritorial jurisdiction and is willing to investigate the conduct of US firms occurring outside the United States, including conduct occurring in connection with foreign securities and on foreign exchanges. The SEC subpoena also likely reflects the growing degree of cooperation and coordination between the SEC and foreign securities regulators.
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