09.03.13 | Blog Posts

What Happens Outside The USA, Stays Outside The USA: Reining In The Extraterritorial Reach Of Criminal Securities Laws

The Insider: White Collar Defense and Securities Enforcement

Criminal securities laws do not reach transactions that occur outside the United States. This is the conclusion of the Second Circuit Court of Appeals which last Friday applied the Supreme Court’s reasoning in Morrison v. National Australia Bank to criminal cases. In United States v. Vilar, the Second Circuit held that without specific authority from Congress to do so, the federal government cannot prosecute foreign activity.

Counsel for corporations conducting multinational business should take note – this decision marks a significant setback for United States prosecutors’ efforts to police global business conduct. Its effects will not only be felt in securities fraud cases, but may well extend to other cases involving international activity. In Vilar, Judge Jose A. Cabranes, writing for a unanimous panel, considered the validity of the convictions of Alberto Vilar and Gary Alan Tanaka, two prominent investment managers and advisers. Vilar and Tanaka were found guilty by a jury of lying to clients about the nature and quality of certain investments.  On appeal, the defendants argued that they could not be held criminally liable for securities fraud because the securities purchases at issue occurred outside the United States. [...]

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