April 12 (Reuters) - If you're looking for a detailed and
thoughtful analysis of the background and impact of the U.S.
Supreme Court's 2010 ruling in Morrison v. National Australia Bank, spend a couple of hours with the Securities and Exchange
Commission's 106-page report on the ruling, mandated by
Dodd-Frank and issued Wednesday afternoon. The decision, as you
know, pretty much wiped out U.S. securities fraud claims against foreign companies, and the SEC report on its effect is so
comprehensive that George Conway III of Wachtell, Lipton, Rosen
& Katz, who won Morrison at the Supreme Court, told me the
report could serve as a law school syllabus on transnational
"The SEC staff did an absolutely fabulous job," Conway said.
"The report is thorough and sagacious...It is going to be an
excellent starting point if Congress ever chooses to look into
But the report provides little impetus for Congress to do
The SEC commissioners did not adopt specific recommendations
about how to reform the securities laws to provide U.S.
investors with a cause of action against companies whose shares
trade on foreign exchanges. Indeed, the options the SEC staff
presents in the report range from doing nothing to codifying a
version of the domestic conduct and effects test that was in
effect before the high court's Morrison ruling. That encompasses
pretty much every legislative possibility, but instead of
offering Congress some guidance on which route to take, the
commissioners passed the report along without even indicated
that they'd voted on it.
Commissioner Luis Aguilar was so irritated at his
colleagues' namby-pamby-ness that he issued a dissent-like
statement along with the report. Aguilar called for
reinstatement of the conduct and effects test -- and harshly criticized the rest of the commissioners for failing to take a
stand. "I write to convey my strong disappointment that the
study fails to satisfactorily answer the Congressional request,
contains no specific recommendations, and does not portray a
complete picture of the immense and irreparable investor harm
that has resulted, and will continue to result, due to Morrison
v. National Australia Bank," Aguilar wrote. "The study falls far
short of providing Congress with an informed recommendation and
falls far short in fulfilling the Commission's mission to
protect investors. I am particularly astonished that the study
states that an option 'would be for Congress to take no action,'
and, thus, would continue to deny American investors who have
been harmed by fraud the ability to seek redress in court."
(Aguilar's dissent certainly makes me wonder what kind of
negotiations went on between the three Democratic commissioners
and their two Republican colleagues before they decided to send
the report to Congress without a formal vote.)
Congress usually needs a compelling reason to meddle with
the securities laws, which, you'll recall, were passed way back
in the 1930s. Morrison was enough of a concern that the
Dodd-Frank Act took care to specify that the ruling's bar on
extraterritorial application of securities laws doesn't apply to
Justice Department and SEC criminal and enforcement actions. But
without the financial meltdown that led to Dodd-Frank, and
without a strong call for reform from the SEC in this report,
it's not likely that the House of Representatives, in
particular, will pass any Morrison rollback.
On the other hand, the report notes that major state pension
funds are advocating a rollback, and they have some clout even
with Republicans. Thomas Dubbs of Labaton Sucharow, who lost the
Morrison case at the U.S. Supreme Court and has been calling for
a legislative rollback ever since, told me Thursday that in the
long run, the SEC report should help that cause. "The commission
report was, on balance, helpful," he said. "The staff laid out a
variety of options, most of which advocate changes of one form
or another. This will advance political dialogue on this issue."
(Reporting by Alison Frankel)
Follow us on Twitter: @AlisonFrankel, @ReutersLegal