U.S. District Court Interprets Extraterritorial Reach of Commodities Exchange Act in Private Lawsuits

Longstanding precedent has held that the Commodity Exchange Act (CEA) does not apply “extraterritorially.”  However, what constitutes “domestic” conduct has been the subject of much recent debate.  In 2010, in Morrison v. National Australia Bank, the U.S. Supreme Court overturned longstanding precedent and established a “transactional” test for determining the extraterritorial reach of the Securities Exchange Act of 1934.  Then, in 2012, in Absolute Activist Master Value Fund v. Ficeto, the U.S. Court of Appeals for the Second Circuit provided specific guidance on when securities transactions would be considered “domestic.”  See “Second Circuit Clarifies When Offshore Hedge Funds Can Make Section 10(b) Securities Fraud Claims in Connection with ‘Domestic Transactions’ with Conduct and Effects in the United States,” Hedge Fund Law Report, Vol. 5, No. 11 (Mar. 16, 2012); and “Update: Are There Still Avenues for Recovery in United States Courts for Overseas Hedge Fund Losses After Morrison v. National Australia Bank Ltd.?,” Hedge Fund Law Report, Vol. 3, No. 27 (Jul. 8, 2010).  The U.S. District Court for the Southern District of New York recently considered whether the “transactional” test in Morrison also applies to a private suit for fraud perpetrated in a non-U.S. fund brought under the CEA.  This article summarizes the Court’s decision and reasoning in this action.  See also “Does the U.S. Commodity Exchange Act Apply to Investments in Non-U.S. Commodity Funds?,” Hedge Fund Law Report, Vol. 6, No. 15 (Apr. 11, 2013).

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