Opinion ID: 2771328
Heading Depth: 4
Heading Rank: 2

Heading: Domestic Transactions in Securities

Text: not Listed on Domestic Exchanges In this case, foreign entities purchased and sold securities quoted on the OTCBB and the Pink Sheets. Several of these purchases were executed by market makers operating within the United States. In contrast, the Court in Morrison considered a “foreign cubed action . . . in which (1) foreign plaintiffs [were] suing (2) a foreign issuer in an American court for violations of American securities laws based on securities transactions in (3) foreign countries.” Morrison, 561 U.S. at 283 n.11 (Stevens, J., concurring in the judgment) (internal quotation marks omitted).13 In that case, all aspects 12 But see SEC v. Ficeto, 839 F. Supp. 2d 1101, 1108 (C.D. Cal. 2011) (“hold[ing] that Morrison does not bar the territorial application of § 10(b) to manipulative trading on the domestic over-the-counter market”); see also United States v. Isaacson, 752 F.3d 1291, 1299 (11th Cir. 2013) (securities traded on the OTCBB or Pink Sheets “meet[] Morrison’s requirement for a U.S. nexus”). 13 In Morrison, Australian investors purchased shares of an Australian bank whose stock shares were listed on the Australian Stock Exchange Limited. 561 U.S. at 251-52. In 1998, the Australian bank purchased an American mortgage servicing company and for three years touted the success of the American company’s business in its annual reports and public documents and statements. Id. at 251-52. But in 2001, the Australian bank wrote down the value of the American company’s assets by more than $2 billion, which resulted in a 15 of the trades at issue occurred abroad, and thus, it was determined that Section 10(b) did not apply. There are two key distinctions between Morrison and the instant case: (1) the transactions in this case involve stocks of U.S. companies, (2) that were executed through American market makers. To determine whether the transactions at issue were “domestic transactions,” under Morrison, id. at 267, we consider “not . . . the place where the deception originated, but [the place where] purchases and sales of securities” occurred. Id. at 266. It is the “location of the transaction that establishes (or reflects the presumption of) the [Security Exchange] Act’s inapplicability.” Id. at 268. Several of our sister circuits interpret this to mean that “a securities transaction is domestic when the parties incur irrevocable liability to carry out the transaction within the United States or when title is passed within the United States.” Absolute Activist Value Master Fund Ltd v. Ficeto, 677 F.3d 60, 69 (2d Cir. 2012); see also Quail Cruise Ship Mgmt Ltd. v. Agencia de Viagens, 645 F.3d 1307, 1310-11 (11th Cir. 2011) (allegation that closing in Florida precipitated transfer of title sufficient to satisfy Morrison at motion to dismiss); SEC v. Levine, 462 Fed. App’x 717, 719 (9th Cir. 2011) (“[T]he Securities Act governs the [] sales because the actual sales closed in Nevada when [a defendant] received completed stock purchase agreements and payments.”); United States v. Isaacson, 752 F.3d 1291, 1300 drop in the value of the Australian bank’s stock. Id. at 252. The Australian investors sued the bank in the Southern District of New York alleging violations of the Securities Exchange Act, 15 U.S.C. §§ 78j(b) and 78t(a). Id. at 253-54. 16 (11th Cir. 2013) (fund at issue “was ‘run out of New York City’ and [] [defendant’s] office was located in Florida, which support[] the inference that the [] [f]und purchased the securities in the United States.”) We agree that “‘[c]ommitment’ is a simple and direct way of designating the point at which . . . the parties obligated themselves to perform what they had agreed to perform even if the formal performance of their agreement is to be after a lapse of time.’” Absolute Activist, 677 F.3d at 68 (quoting Radiation Dynamics, Inc. v. Goldmuntz, 464 F.2d 876, 891 (2d Cir. 1972)) (internal quotation marks omitted). Thus, “the point of irrevocable liability can be used to determine the locus of a securities purchase or sale.” Id. Accordingly, territoriality under Morrison turns on “where, physically, the purchaser or seller committed him or herself” to pay for or deliver a security. Vilar, 729 F.3d at 77 n.11. Facts that demonstrate “irrevocable liability” include the “formation of the contracts, the placement of purchase orders, the passing of title, or the exchange of money.” Absolute Activist, 677 F.3d at 69, 70; see also Vilar, 729 F.3d at 78.14 In Vilar, the Second Circuit concluded that Section 10(b) applied where: (1) some victims entered into investment agreements in the United States; (2) another 14 On the other hand, heavy marketing in the United States, a party’s residency or citizenship, and the fact that the deception may have originated in the United States were insufficient to support a Section 10(b) claim. Absolute Activist, 677 F.3d at 70. 17 victim “executed the documents necessary to invest . . . in her own New York apartment and handed those documents to a New York messenger”; and (3) one victim sent the money required for opening her account from New York. 729 F.3d at 76-78 (internal quotation marks and citation omitted). Here, at least one of the fraudulent transactions in each of the Target Stocks was bought and sold through U.S.-based market makers. Government witness and SEC employee Daniel Koster testified that all of the manipulative trades were “facilitate[d]” by U.S.-based market makers, i.e., an American market maker bought the stock from the seller and sold it to the buyer. (App. 1890-96, 1904-05, 1968); see also 15 U.S.C. § 78c(38). Therefore, some of the relevant transactions required the involvement of a purchaser or seller working with a market maker and committing to a transaction in the United States, incurring irrevocable liability in the United States, or passing title in the United States. The record also contains evidence of specific instances in which the Target Stocks were bought or sold at Georgiou’s direction from entities located in the United States.15 15 For instance: (1) on November 3, 2005, Waltzer, who was located in Pennsylvania, sold 69,150 shares of Neutron stock from one of his accounts to another of his accounts; (2) on May 9, 2006, from within the United States, Waltzer sold 100,000 shares of Avicena stock from one of his accounts to another of his; (3) Georgiou deposited 2.5 million HYHY shares into an account in California; (4) on September 3, 2008, an undercover FBI agent purchased 16,000 shares of Northern Ethanol stock from within the United States; and (5) Georgiou wired $5,000 to a bank account in Philadelphia for 18 We now hold that irrevocable liability establishes the location of a securities transaction. Here, the evidence is sufficient to demonstrate that Georgiou engaged in “domestic transactions” under the second prong of Morrison, i.e., transactions involving “the purchase or sale of any [] security in the United States.” See Morrison, 561 U.S. at 273. Thus, the District Court’s application of Section 10(b) to Georgiou’s transactions was proper.