The project grew out of some earlier work on the topic of transnational regulatory litigation, which considered the circumstances under which domestic regulatory law might be applied to curb global economic misconduct. This piece focused on a particular kind of transnational regulatory case: the “foreign-cubed” securities class action. These lawsuits involve fraud claims brought by foreign investors against foreign issuers, based on harm arising out of investment transactions on foreign securities exchanges. While such claims appear insufficiently connected to the United States to warrant application of U.S. securities law, courts have in some cases incorporated them into class actions brought by U.S. investors against the same issuer.
This article draws on a study of 45 foreign-cubed claims brought between 1996 and 2005. It looks at the arguments made by foreign investors who seek to justify the application of U.S. law to their claims –- arguments that use the interconnections among the world’s capital markets as the basis of an expansive theory of legislative jurisdiction. It also analyzes judicial disposition of such claims at various stages of litigation (including class certification).
Ultimately, the article concludes that the current jurisdictional framework used in securities cases, which relies on outdated and ambiguous “conduct” and “effects” tests, is not up to the task of managing the sort of regulatory conflicts that foreign-cubed claims present. It therefore supports a jurisdictional limit in such cases based on the location of the relevant investment transaction.