March 02, 2015 Articles

Domestic Transaction Test Applied to Private Action under CEA

The Second Circuit leaves open the door for governmental enforcement of the Commodities Exchange Act?s antifraud provisions.

By Steven M. Richard

Federal statutes are presumed not to have any effect outside the United States absent a clearly expressed affirmative intent by Congress. This presumption was established in Morrison v. National Australia Bank Ltd., 561 U.S. 247, 130 S. Ct. 2869, 177 L. Ed. 2d 535 (2010), where the Supreme Court held that section 10(b) of the Securities Exchange Act of 1934 has no extraterritorial reach. There, the Court unequivocally stated that “[w]hen a statute gives no clear indication of an extraterritorial application, it has none.” Morrison, 130 S. Ct. at 2878. Applying Morrison, the U.S. Court of Appeals for the Second Circuit examined the territorial scope of the Commodity Exchange Act (CEA) in Loginovskaya v. Batrachencko, 764 F.3d 266 (2d Cir. 2014). The CEA, codified at 7 U.S.C. § 1 et seq., is a remedial statute designed to protect an innocent commodities-market investor. It includes several antifraud provisions to fulfill that purpose, including section 4o. See 7 U.S.C. § 6o(1) (2008). In a 2–1 ruling, the Second Circuit concluded that a private action filed under CEA section 22 must allege a commodities transaction within the United States. The strongly worded dissent accused the majority of misunderstanding commodities law and misapplying Morrison’s presumption against extraterritoriality.

Premium Content For:
  • Litigation Section
Join - Now