Attacks on the Securities and Exchange Commission (SEC) by the left and the right, hostility to the agency by the courts, an overload of rule-making obligations imposed by recent federal statutes, and partisan politics in Congress and on the commission are taking a toll on the ability of the SEC to formulate coherent policy. Such regulatory ossification is exhibited in the recent SEC staff study on the scope of Section 10(b) actions in cross-border private cases.1 Commissioner Luis Aguilar issued an impassioned dissent2 from the staff study, arguing 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,” from the failure to extend Section 10(b) to cross-border private cases.3
This controversy emanates from the decision of the U.S. Supreme Court in Morrison v. National Australia Bank,4 which cavalierly discarded more than 40 years of precedent in the lower courts applying the conduct and effects test to cross-border disputes arising under Section 10(b) of the Securities Exchange Act of 1934.5 The court substituted a new transactional test limiting Section 10(b) to frauds “in connection with the purchase or sale of a security listed on an American stock exchange, and the purchase or sale of any other security in the United States.”6 Almost simultaneously, the Congress, in the Dodd-Frank Act of 2010, restored the ability of the SEC and the Department of Justice to bring actions under Section 10(b) in cases of transnational fraud,7 and directed the SEC to conduct a study to determine whether private rights of action should be similarly restored to private plaintiffs.8
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