Second Circuit Curtails the Territorial Reach of Criminal Liability under Section 10(b)

6 September 2013
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Key takeaways:

  • On August 30, 2013, the United States Court of Appeals for the Second Circuit in United States v. Vilar, et al. unanimously held that Section 10(b) of the Securities Exchange Act of 1934 (“Section 10(b)”) does not apply to extraterritorial conduct, “regardless of whether liability is sought criminally or civilly,” thereby clarifying a question left open by the Supreme Court’s landmark ruling in Morrison v. National Australian Bank Ltd.
  • The Second Circuit’s decision means that a criminal defendant may be convicted of fraud under Section 10(b) only if the defendant engaged in fraud “in connection with” a security listed on a United States exchange or a security “purchased or sold” in the United States.
  • Although the Vilar decision provides much needed clarity on the extraterritorial reach of Section 10(b), the decision once again brings to the forefront the confusion around the impact of Section 929P(b) of the Dodd-Frank Act of 2010 (“Dodd-Frank”), which was enacted ostensibly to make Morrison inapplicable to SEC and DOJ actions.