I 

115TH CONGRESS 

2D SESSION H. R. 5037 

To provide for exclusive Federal jurisdiction over civil securities fraud actions, 

and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

FEBRUARY 15, 2018 

Mr. MACARTHUR (for himself, Mr. DAVIDSON, Ms. TENNEY, and Mr. 

MCHENRY) introduced the following bill; which was referred to the Committee on Financial Services 

A BILL 

To provide for exclusive Federal jurisdiction over civil 

securities fraud actions, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Securities Fraud Act 

5 of 2018’’. 

6 SEC. 2. FINDINGS. 

7 Congress finds the following: 

8 (1) Companies engaged in interstate commerce 

9 and publicly traded on national exchanges face 

10 unique challenges, operating often in every United 


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1 States jurisdiction, under a variety of civil securities 

2 fraud statutes (‘‘blue sky laws’’) that can overlap or 

3 contradict each other and Federal law. 

4 (2) Civil and criminal fraud have inherent dif5 ferences in affect and burden of proof. States have 

6 a unique interest in prosecuting criminal fraud that 

7 should be maintained. 

8 (3) Imposing differing State regulatory require9 ments for civil securities fraud on national markets 

10 increases risk, creates inefficiencies, raises costs, and 

11 can harm the efficient operation of these critical 

12 markets, without providing material investor protec13 tion benefits. 

14 (4) Complying with dual regulatory regimes 

15 places America’s public companies at a unique com16 petitive disadvantage in an increasing global market17 place. 

18 (5) Reputational risk for United States publicly 

19 traded companies accused of ‘‘civil fraud’’ in State 

20 civil enforcement actions, often based on State law 

21 standards that differ from Federal law that other22 wise governs these national markets, can cause im23 mediate and irreparable financial harm to share24 holders and unnecessary loss of jobs, even after such 

25 allegations are later found to be baseless. 


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1 (6) As of June 2017, there were 5,734 public 

2 companies, little more than in 1982, when the econ3 omy was less than half its current size. The lack of 

4 a uniform standard for public companies is a con5 tributing factor to the declining interest in the 

6 United States public market, harming the United 

7 States economy and reducing investment opportuni8 ties for the United States public. 

9 (7) The Commerce Clause, found in article I, 

10 section 8, clause 3 of the Constitution, explicitly 

11 states that the United States Congress shall have 

12 power ‘‘To regulate Commerce with foreign Nations, 

13 and among the several States, and with the Indian 

14 Tribes’’. Interstate Commerce is an explicitly Fed15 eral responsibility, and companies actively engaging 

16 in commerce across State lines and raising capital 

17 on national markets should be primarily regulated 

18 by the Federal Government’s uniform anti-fraud 

19 standard. 

20 (8) In the past, Congress has exercised this au21 thority in regards to State securities preemption 

22 with both the Private Securities Litigation Reform 

23 Act (‘‘PSLRA’’), which was designed to curb abusive 

24 Federal class actions (Public Law 104–67), and the 

25 National Securities Markets Improvements Act 


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1 (‘‘NSMIA’’) to ensure that States could not impose 

2 their own views of what should or should not be in3 cluded in registration statements filed in connection 

4 with nationally traded securities (Public Law 104– 

5 290). 

6 (9) It is in the public interest to establish pre7 emption of Federal regulators and courts over civil 

8 securities fraud, eliminating concurrent Federal and 

9 State jurisdiction over the specific companies cov10 ered by this Act. 

11 SEC. 3. FEDERAL JURISDICTION OVER SECURITIES FRAUD. 

12 (a) SECURITIES EXCHANGE ACT OF 1934.—The Se13 curities Exchange Act of 1934 is amended by inserting 

14 after section 21F (15 U.S.C. 78u–6) the following: 

15 ‘‘SEC. 21G. FEDERAL JURISDICTION OVER SECURITIES 

16 FRAUD. 

17 ‘‘(a) IN GENERAL.—No law, rule, regulation, judg18 ment, agreement, order, or other action of any State or 

19 political subdivision thereof, shall regulate securities fraud 

20 with respect to an issuer. 

21 ‘‘(b) ACTIONS BROUGHT EXCLUSIVELY IN FEDERAL

22 COURT.—The district courts of the United States shall 

23 have original and exclusive jurisdiction over any civil ac24 tion alleging securities fraud with respect to an issuer, and 

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1 able to the Federal district court for the district in which 

2 the action is pending. 

3 ‘‘(c) PRESERVATION OF STATE AUTHORITY.—Con4 sistent with this section, the securities commission (or 

5 agency or office performing like functions) of any State 

6 shall retain jurisdiction under the laws of such State to 

7 investigate and bring— 

8 ‘‘(1) civil enforcement actions with respect to 

9 fraud or deceit, or unlawful conduct in connection 

10 with securities or securities transactions other than 

11 in connection with a covered security or transactions 

12 of a covered security; and 

13 ‘‘(2) criminal enforcement actions with respect 

14 to fraud or deceit, or unlawful conduct in connection 

15 with a covered security or transactions of a covered 

16 security provided such State criminal enforcement 

17 actions shall comply in all respects with the legal re18 quirements for securities fraud under Federal law. 

19 ‘‘(d) EFFECT.—These provisions shall be effective 

20 notwithstanding any other provision of law and shall su21 persede any previously enacted conflicting provisions. 

22 ‘‘(e) DEFINITIONS.—In this section— 

23 ‘‘(1) SECURITIES FRAUD.—The term ‘securities 

24 fraud’ means any misrepresentation, omission, or 

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1 knowingly made or engaged in connection with a 

2 covered security or transaction of a covered security. 

3 ‘‘(2) COVERED SECURITY.—A security is a ‘cov4 ered security’ if such security is— 

5 ‘‘(A)(i) listed, or authorized for listing, on 

6 the New York Stock Exchange or the National 

7 Market System of the Nasdaq Stock Market (or 

8 any successor to such entities); 

9 ‘‘(ii) listed, or authorized for listing, on a 

10 national securities exchange (or tier or segment 

11 thereof) that has listing standards that the 

12 Commission determines by rule (on its own ini13 tiative or on the basis of a petition) are sub14 stantially similar to the listing standards appli15 cable to securities described in subparagraph 

16 (A); or 

17 ‘‘(iii) a security of the same issuer that is 

18 equal in seniority or that is a senior security to 

19 a security described in subparagraph (A) or 

20 (B); and 

21 ‘‘(B) issued by a company engaged in 

22 interstate commerce.’’. 

23 (b) SECURITIES ACT OF 1933.—The Securities Act 

24 of 1933 is amended by inserting after section 28 (15 

25 U.S.C. 77z–3) the following new section: 


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1 ‘‘SEC. 29. FEDERAL JURISDICTION OVER SECURITIES 

2 FRAUD. 

3 ‘‘(a) IN GENERAL.—No law, rule, regulation, judg4 ment, agreement, order, or other action of any State or 

5 political subdivision thereof, shall regulate securities fraud 

6 with respect to an issuer. 

7 ‘‘(b) ACTIONS BROUGHT EXCLUSIVELY IN FEDERAL

8 COURT.—The district courts of the United States shall 

9 have original and exclusive jurisdiction over any civil ac10 tion alleging securities fraud with respect to an issuer, and 

11 any such action brought in any State court shall be remov12 able to the Federal district court for the district in which 

13 the action is pending. 

14 ‘‘(c) PRESERVATION OF STATE AUTHORITY.—Con15 sistent with this section, the securities commission (or 

16 agency or office performing like functions) of any State 

17 shall retain jurisdiction under the laws of such State to 

18 investigate and bring— 

19 ‘‘(1) civil enforcement actions with respect to 

20 fraud or deceit, or unlawful conduct in connection 

21 with securities or securities transactions other than 

22 in connection with a covered security or transactions 

23 of a covered security; and 

24 ‘‘(2) criminal enforcement actions with respect 

25 to fraud or deceit, or unlawful conduct in connection 

26 with a covered security or transactions of a covered 


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1 security provided such State criminal enforcement 

2 actions shall comply in all respects with the legal re3 quirements for securities fraud under Federal law. 

4 ‘‘(d) EFFECT.—These provisions shall be effective 

5 notwithstanding any other provision of law and shall su6 persede any previously enacted conflicting provisions. 

7 ‘‘(e) DEFINITIONS.—In this section— 

8 ‘‘(1) SECURITIES FRAUD.—The term ‘securities 

9 fraud’ means any misrepresentation, omission, or 

10 manipulative or deceptive conduct knowingly or un11 knowingly made or engaged in connection with a 

12 covered security or transaction of a covered security. 

13 ‘‘(2) COVERED SECURITY.—A security is a ‘cov14 ered security’ if such security is— 

15 ‘‘(A)(i) listed, or authorized for listing, on 

16 the New York Stock Exchange or the National 

17 Market System of the Nasdaq Stock Market (or 

18 any successor to such entities); 

19 ‘‘(ii) listed, or authorized for listing, on a 

20 national securities exchange (or tier or segment 

21 thereof) that has listing standards that the 

22 Commission determines by rule (on its own ini23 tiative or on the basis of a petition) are sub24 stantially similar to the listing standards appliVerDate Sep 11 2014 03:20 Feb 22, 2018 Jkt 079200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H5037.IH H5037

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1 cable to securities described in subparagraph 

2 (A); or 

3 ‘‘(iii) a security of the same issuer that is 

4 equal in seniority or that is a senior security to 

5 a security described in subparagraph (A) or 

6 (B); and 

7 ‘‘(B) issued by a company engaged in 

8 interstate commerce.’’. 

Æ 


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