In the landmark case of Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010), the U.S. Supreme Court limited the extraterritorial effect of the federal securities laws, holding that they cover only transactions involving securities listed on domestic exchanges or domestic transactions in other securities. Recently, in Securities Exchange Commission v. Morrone, 997 F.3d 52 (1st Cir. 2021), the First Circuit joined the Second, Third and Ninth Circuits in holding that transactions qualify as domestic depending on the location of the buyer or seller when they become irrevocably liable to receive or deliver the security. At the same time, the court rejected an extra limitation advanced by the Second Circuit that would exclude transactions otherwise “predominantly foreign.” While that split in authority has been fading away for SEC actions because of legislative amendments made after Morrison, it may persist as to private actions where Morrison remains the governing standard.

Factual Background

The case began in 2012, when the SEC brought enforcement actions against Bio Defense Corporation, senior officers Jonathan Morrone and Z. Paul Jurberg, and others associated with Bio Defense. (All facts are drawn from the decision itself.) The company was formed shortly after the anthrax scare in 2001 to create machines with the ability to decontaminate letters (a real-world “antivirus” program, so to speak). Before joining Bio Defense, Morrone and Jurberg had worked as registered representatives at various broker-dealers.