Chapter 3 - Off-Shore Short Sales after Morrison: Will the Securities and Exchange Commission Be Emboldened or Constrained?

Abstract

This chapter focuses on the appropriate role for the Securities and Exchange Commission (SEC) in administering and enforcing the federal securities laws in the face of increasing securities markets globalization. This trend of increasing globalization invites the SEC to revisit its enforcement functions and reconsider its regulatory reach, especially in the shadow of Morrison v. National Australian Bank Ltd., which is the most recent and relevant word from the US Supreme Court on the topic. The pending litigation against Goldman executive Fabric Tourre portends a changing focus of regulatory activity of the SEC. The ultimate outcome of the case against Tourre is likely to shape the future SEC enforcement strategy. Following the recent enactment of Dodd–Frank Act, the SEC may resume enforcement litigation against alleged transnational fraudsters, irrespective of whether the subject transactions are “long” or “short.” This chapter considers how the court might interpret and apply the recent US Supreme Court holding in Morrison v. National Australia Bank Ltd. and reconciles Morrison with provisions of the newly enacted Dodd–Frank Act as it relates to enforcement actions involving foreign participants. Despite the possible outcome of the ruling, the SEC is expected to increase its regulatory reach with new vigor.