"The SEC always…took a very expansive view [of jurisdiction]…The theory has always been that if you're defrauding one U.S. investor – even though most of the investors are not in the U.S.…then a court ought to have jurisdiction."
The issue of whether U.S. securities laws applied in a particular case where activity occurred abroad and whether a U.S. court would have jurisdiction over a person who violated the securities laws abroad was a thorny and complicated one.
The SEC's stance was controversial. As with the previous issues with Canada, many believed that such a broad claim of extraterritorial jurisdiction infringed upon other countries' sovereignty. It was about to become even more controversial.
In 1984, the SEC published a release in which it proposed a new concept of jurisdiction called "waiver by conduct." The SEC wanted to claim that any time a person engaged in a transaction in the U.S. securities markets, they became automatically subject to U.S. securities laws and provided irrevocable consent to the disclosure of information relating to the transaction. In addition, transacting in the U.S. market would automatically provide a U.S. court with personal jurisdiction over the purchaser or seller.
In response to the release, the SEC received sixty three comment letters, of which only four supported waiver by conduct. Objections principally focused upon the United States infringing the sovereignty of other countries. A letter from the International Law and Practice Section of the American Bar Association stated that waiver by conduct would be "rejected abroad as an impermissible extraterritorial application of U.S. law."(84). A number of countries also made clear that that they would not recognize the validity of waiver by conduct as bank secrecy laws could not be waived except by an express written agreement.(85)
Due to the resounding criticism of waiver by conduct and the SEC's belief that ultimately any mechanism requiring judicial intervention would be slow, it was never adopted. However, according to Michael Mann, the threat of it "represented a critical transition point for the SEC's international program." A multitude of counties now became willing to negotiate with the SEC regarding mutual assistance.
(84) Comment Letter from Brad L. Nelson, Committee on Extraterritorial Application of United States Law, International Law and Practice Section, American Bar Association (January 21, 1985).
(85) Brad Begin, "Proposed Blueprint for Achieving Cooperation in Policing Transborder Securities Fraud," 27 Virginia Journal of International Law.
