ICOs and the SEC's Extraterritorial Jurisdiction: A Brief Primer

The language only addresses a federal court's jurisdiction, not the SEC's jurisdiction.

In SEC v. Traffic Monsoon, the District of Utah ruled that the Dodd-Frank language overruled Morrison, and the "Conduct and effects" test applied to the SEC's regulatory powers.

The Court essentially said that because there is a presumption against extraterritoriality, and because the "Conduct and effects" test applies American securities law to a broad swath of foreign transactions, we need a better test.

Most of all, we need a test that reflects the presumption that securities laws do not have extraterritorial application.

So the Supreme Court overruled the "Conducts and effects" test announced a new test, the "Transactional Test." The Transactional Test is a follows: American securities law applied "Only 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."

This sounds a lot like the old test and indeed that is exactly what the SEC continues to argue-namely, this language overrules Morrison and means that the "Conduct and effects" test applies in determining whether the SEC can bring a regulatory action predicated on a foreign investment.

It says the district court has jurisdiction over the regulatory action, not that the SEC may validly state a claim.

A federal court always had jurisdiction, if only to tell the SEC it was reaching too far.

Undeterred, the SEC has very consistently argued, using legislative history and canons of statutory construction, that Congress meant to expand its regulatory authority and the reference to district courts was a drafting error.

The court in SEC v. Traffic Monsoon, LLC ruled that Dodd-Frank did in fact overrule Morrison and that the "Conducts and effects" test governed the SEC's regulatory reach.