A bright-line test limiting the application of U.S. securities law to transactions that occur within the United States is hard to swallow for one reason I mentioned yesterday: it would exclude the claims of American investors, not just foreign investors, who bought securities of foreign issuers in foreign transactions.  And it's hard to swallow for another reason as well: it retreats to a sort of artificial territoriality rather than grappling with the messy reality of the global capital markets.  What if, as is often the case, there's a multinational class including U.S. holders of ADRs as well as foreign holders of common stock?  Wouldn't there be efficiencies to be gained in avoiding duplicative litigation in multiple jurisdictions?  Or what if a cross-listed foreign company deliberately releases fraudulent information in the United States, knowing that even after paying resulting damages to its U.S. investors, it would come out ahead, because foreign investors wouldn't be able to mount a private action?  Wouldn't there be a U.S. interest in deterring such fraud, reducing private enforcement costs within the United States?  I think there are U.S. (and shared) regulatory interests here.

So what's the argument for the bright-line test?  Avoiding complexity in litigation is certainly one, and it's not trivial -- and although I'm a fan of case-by-case interest balancing-type tests, I have to admit that the Justices have showed zero appetite for that kind of approach.  But the argument that in my view is the most compelling, as I have argued here and here, is simply that the application of U.S. law in cases that are so closely connected to other countries brings our private enforcement mechanisms into unacceptable conflict with foreign regulatory regimes.

This point was raised during argument.  The Justices identified various aspects of U.S. substantive and procedural law that are viewed as unacceptable in most other legal systems: the lack of a loser-pays rule; contingency fees; opt-out class actions; our discovery process; and -- critical in these securities claims -- our use of fraud-on-the-market as a substitute for a showing of actual reliance.  As the Justices recognized, it's hard to understand why Australia's regulatory choices should be displaced by U.S. law in a case involving an Australian issuer and transactions on the Australian market.  And counsel for the respondent was able to bracket his argument with these concerns: he began by invoking "the threat that the section 10(b) implied right presents to the sovereign authority of other nations," and ended by asking the Court to avoid "the sort of legal imperialism" that it had rejected in the antitrust context.

Bottom-line prediction?  Maybe, despite these concerns, the Court will leave the door open for the "foreign-squared" scenario (U.S. investor, foreign issuer, foreign transaction) -- but foreign-cubed claims seem to be done.

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