Financial regulation: Reaching out to a friend
The activities of regulators around the world are constantly hitting the headlines as they use all the powers and laws at their disposal. Nowhere is this more prevalent than in the US, as regulators look to reinforce their authority after coming under fire in the wake of Bernard Madoff's alleged $50bn (£35bn) investment fraud. Not only are the US regulators determined to clamp down on home soil, UK and foreign businesses and individuals are facing an increased threat from the long arm of the US law.
The attempts by US regulators to steer businesses towards tightened laws at home are now stretching across the pond to both UK and other foreign companies
The activities of regulators around the world are constantly hitting the headlines as they use all the powers and laws at their disposal. Nowhere is this more prevalent than in the US, as regulators look to reinforce their authority after coming under fire in the wake of Bernard Madoff’s alleged $50bn (£35bn) investment fraud. Not only are the US regulators determined to clamp down on home soil, UK and foreign businesses and individuals are facing an increased threat from the long arm of the US law.
New development in international cooperation
On 28 January, 2009 the English Court of Appeal’s decision to dismiss the appeal of Glenn Manterfield, a UK citizen, upholding the Securities and Exchange Commission’s (SEC’s) asset freeze, paved the way for new developments in international co-operation.
The US authorities are leading the way in cross-border enforcement actions imposing huge penalties on foreign companies – the latest example being the E1bn (£921m) fine imposed on Siemens for breaches of corruption laws. They are also readily seeking extradition of foreign nationals to face trial in the US; and in this latest development they have successfully obtained an order to freeze assets in the UK in support of a US investigation into suspected fraud.
The recent UK appeals court decision of SEC v Manterfield has strengthened the armoury of foreign regulators such as the SEC and has demonstrated the English courts’ willingness to assist foreign enforcement authorities in policing fraud and freezing fraudulently obtained assets.
In April 2007, the SEC commenced proceedings in Massachusetts against three defendants (including Manterfield) who were alleged to have: 1) fraudulently sold hedge fund interests to more than 60 Taiwanese investors, inducing them to invest approximately $34m (£24m) in the fund; and 2) misappropriated assets.
The SEC obtained freezing injunctions from the Massachusetts courts but they were not enforceable against Manterfield’s assets in England. In February 2008, the SEC applied to the English High Court for and obtained a freezing order against Manterfield’s worldwide assets, in support of the Massachusetts proceedings. The SEC was not required to give a cross-undertaking in damages or any security payment to the English court.
Manterfield appealed on the basis that: 1) it was a fundamental rule of international law that the English courts would not assist any action by a foreign state in civil proceedings to enforce foreign penal or revenue law and; 2) it was an incorrect exercise of discretion not to require the SEC to provide a cross-undertaking in damages.
Manterfield’s appeal was rejected. The worldwide freezing order against Manterfield’s assets was continued, without the SEC having to give any cross-undertaking or security.
The Civil Jurisdiction and Judgments Act 1982
Section 25 gives the English court the power to grant an injunction in support of proceedings anywhere in the world where it seems expedient to do so. The foreign court hearing the proceedings must also not have the power to do so (the Massachusetts court did not), and there must be some connection with the English court. The connection here was that Manterfield had assets in England.
It is the court’s normal practice when granting an injunction to require an undertaking by the party with the benefit of the injunction to indemnify the respondent in the event it suffers any loss as a result of the injunction. The party giving the undertaking is often required to fortify it by paying a sum of money into court or providing a bank guarantee.
The issues on appeal
The two issues on appeal were as follows:
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