Justice SCALIA delivered the opinion of the Court.
We decide whether § 10(b) of the Securities Exchange Act of 1934 provides a cause of action to foreign plaintiffs suing foreign and American defendants for misconduct in connection with securities traded on foreign exchanges.
Respondent National Australia Bank Limited (National) was, during the relevant time, the largest bank in Australia. Its Ordinary Shares—what in America would be called "common stock"—are traded on the Australian Stock Exchange Limited and on other foreign securities exchanges, but not on any exchange in the United States. There are listed on the New York Stock Exchange, however, National's American Depositary Receipts (ADRs), which represent the right to receive a specified number of National's Ordinary Shares. 547 F.3d 167, 168, and n. 1 (C.A.2 2008).
The complaint alleges the following facts, which we accept as true. In February 1998, National bought respondent HomeSide Lending, Inc., a mortgage servicing company headquartered in Florida. HomeSide's business was to receive fees for servicing mortgages (essentially the administrative tasks associated with collecting mortgage payments, see J. Rosenberg, Dictionary of Banking and Financial Services 600 (2d ed.1985)). The rights to receive those fees, so-called mortgage-servicing rights, can provide a valuable income stream. See 2 The New Palgrave Dictionary of Money and Finance 817 (P. Newman, M. Milgate, & J. Eatwell eds. 1992). How valuable each of the rights is depends, in part, on the likelihood that the mortgage to which it applies will be fully repaid before it is due, terminating the need for servicing. HomeSide calculated the present value of its mortgage-servicing rights by using valuation models designed to take this likelihood into account. It recorded the value of its assets, and the numbers appeared in National's financial statements.
From 1998 until 2001, National's annual reports and other public documents touted the success of HomeSide's business, and respondents Frank Cicutto (National's managing director and chief executive officer), Kevin Race (HomeSide's chief operating officer), and Hugh Harris (HomeSide's chief executive officer) did the same in public statements. But on July 5, 2001, National announced that it was writing
As relevant here, petitioners Russell Leslie Owen and Brian and Geraldine Silverlock, all Australians, purchased National's Ordinary Shares in 2000 and 2001, before the write-downs.
Respondents moved to dismiss for lack of subject-matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1) and for failure to state a claim under Rule 12(b)(6). The District Court granted the motion on the former ground, finding no jurisdiction because the acts in this country were, "at most, a link in the chain of an alleged overall securities fraud scheme that culminated abroad." In re National Australia Bank Securities Litigation, No. 03 Civ. 6537(BSJ), 2006 WL 3844465, *8 (S.D.N.Y., Oct.25, 2006). The Court of Appeals for the Second Circuit affirmed on similar grounds. The acts performed in the United States did not "compris[e] the heart of the alleged fraud." 547 F.3d, at 175-176. We granted certiorari, 558 U.S. ___, 130 S.Ct. 783, ___ L.Ed.2d ___ (2009).
Before addressing the question presented, we must correct a threshold
But to ask what conduct § 10(b) reaches is to ask what conduct § 10(b) prohibits, which is a merits question. Subject-matter jurisdiction, by contrast, "refers to a tribunal's `"power to hear a case."'" Union Pacific R. Co. v. Locomotive Engineers and Trainmen Gen. Comm. of Adjustment, Central Region, 558 U.S. ___, ___, 130 S.Ct. 584, 596, ___ L.Ed.2d ___ (2009) (quoting Arbaugh v. Y & H Corp., 546 U.S. 500, 514, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006), in turn quoting United States v. Cotton, 535 U.S. 625, 630, 122 S.Ct. 1781, 152 L.Ed.2d 860 (2002)). It presents an issue quite separate from the question whether the allegations the plaintiff makes entitle him to relief. See Bell v. Hood, 327 U.S. 678, 682, 66 S.Ct. 773, 90 S.Ct. 939 (1946). The District Court here had jurisdiction under 15 U.S.C. § 78aa
In view of this error, which the parties do not dispute, petitioners ask us to remand. We think that unnecessary. Since nothing in the analysis of the courts below turned on the mistake, a remand would only require a new Rule 12(b)(6) label for the same Rule 12(b)(1) conclusion. As we have done before in situations like this, see, e.g., Romero v. International Terminal Operating Co., 358 U.S. 354, 359, 381-384, 79 S.Ct. 468, 3 L.Ed.2d 368 (1959), we proceed to address whether petitioners' allegations state a claim.
It is a "longstanding principle of American law `that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States.'" EEOC v. Arabian American Oil Co., 499 U.S. 244, 248, 111 S.Ct. 1227, 113 L.Ed.2d 274 (1991) (Aramco) (quoting Foley Bros., Inc. v. Filardo, 336 U.S. 281, 285, 69 S.Ct. 575, 93 S.Ct. 680 (1949)). This principle represents a canon of construction, or a presumption about a statute's meaning, rather than a limit upon Congress's power to legislate, see Blackmer v. United States, 284 U.S. 421, 437, 52 S.Ct. 252, 76 S.Ct. 375 (1932). It rests on the perception that Congress ordinarily legislates with respect to domestic, not foreign matters. Smith v. United States, 507 U.S. 197, 204, n. 5, 113 S.Ct. 1178, 122 L.Ed.2d 548 (1993). Thus, "unless there is the affirmative intention of the Congress clearly expressed" to give a statute extraterritorial effect, "we must presume it is primarily concerned with domestic conditions." Aramco, supra, at 248, 111 S.Ct. 1227 (internal quotation marks omitted). The canon or presumption applies regardless of whether there is
Despite this principle of interpretation, long and often recited in our opinions, the Second Circuit believed that, because the Exchange Act is silent as to the extraterritorial application of § 10(b), it was left to the court to "discern" whether Congress would have wanted the statute to apply. See 547 F.3d, at 170 (internal quotation marks omitted). This disregard of the presumption against extraterritoriality did not originate with the Court of Appeals panel in this case. It has been repeated over many decades by various courts of appeals in determining the application of the Exchange Act, and § 10(b) in particular, to fraudulent schemes that involve conduct and effects abroad. That has produced a collection of tests for divining what Congress would have wanted, complex in formulation and unpredictable in application.
As of 1967, district courts at least in the Southern District of New York had consistently concluded that, by reason of the presumption against extraterritoriality, § 10(b) did not apply when the stock transactions underlying the violation occurred abroad. See Schoenbaum v. Firstbrook, 268 F.Supp. 385, 392 (1967) (citing Ferraoli v. Cantor, CCH Fed. Sec. L. Rep. ¶ 91615 (SDNY 1965) and Kook v. Crang, 182 F.Supp. 388, 390 (S.D.N.Y.1960)). Schoenbaum involved the sale in Canada of the treasury shares of a Canadian corporation whose publicly traded shares (but not, of course, its treasury shares) were listed on both the American Stock Exchange and the Toronto Stock Exchange. Invoking the presumption against extraterritoriality, the court held that § 10(b) was inapplicable (though it incorrectly viewed the defect as jurisdictional). 268 F.Supp., at 391-392, 393-394. The decision in Schoenbaum was reversed, however, by a Second Circuit opinion which held that "neither the usual presumption against extraterritorial application of legislation nor the specific language of [§ ]30(b) show Congressional intent to preclude application of the Exchange Act to transactions regarding stocks traded in the United States which are effected outside the United States ... ." Schoenbaum, 405 F.2d, at 206. It sufficed to apply § 10(b) that, although the transactions in treasury shares took place in Canada, they affected the value of the common shares publicly traded in the United States. See id., at 208-209. Application of § 10(b), the Second Circuit found, was "necessary to protect American investors," id., at 206.
The Second Circuit took another step with Leasco Data Processing Equip. Corp. v. Maxwell, 468 F.2d 1326 (1972), which involved an American company that had been fraudulently induced to buy securities in England. There, unlike in Schoenbaum, some of the deceptive conduct had occurred in the United States but the corporation whose securities were traded (abroad) was not listed on any domestic exchange. Leasco said that the presumption against extraterritoriality apples only to matters over which the United States would not have prescriptive jurisdiction, 468 F.2d, at 1334. Congress had prescriptive jurisdiction to regulate the deceptive conduct in this country, the language of the Act could be read to cover that conduct, and the court concluded that "if Congress had thought about the point," it would have wanted § 10(b) to apply. Id., at 1334-1337.
With Schoenbaum and Leasco on the books, the Second Circuit had excised the
The Second Circuit had thus established that application of § 10(b) could be premised upon either some effect on American securities markets or investors (Schoenbaum) or significant conduct in the United States (Leasco). It later formalized these two applications into (1) an "effects test," "whether the wrongful conduct had a substantial effect in the United States or upon United States citizens," and (2) a "conduct test," "whether the wrongful conduct occurred in the United States." SEC v. Berger, 322 F.3d 187, 192-193 (C.A.2 2003). These became the north star of the Second Circuit's § 10(b) jurisprudence, pointing the way to what Congress would have wished. Indeed, the Second Circuit declined to keep its two tests distinct on the ground that "an admixture or combination of the two often gives a better picture of whether there is sufficient United States involvement to justify the exercise of jurisdiction by an American court." Itoba Ltd. v. Lep Group PLC, 54 F.3d 118, 122 (1995). The Second Circuit never put forward a textual or even extratextual basis for these tests. As early as Bersch, it confessed that "if we were asked to point to language in the statutes, or even in the legislative history, that compelled these conclusions, we would be unable to respond," 519 F.2d, at 993.
As they developed, these tests were not easy to administer. The conduct test was held to apply differently depending on whether the harmed investors were Americans or foreigners: When the alleged damages consisted of losses to American investors abroad, it was enough that acts "of material importance" performed in the United States "significantly contributed" to that result; whereas those acts must have "directly caused" the result when losses to foreigners abroad were at issue. See Bersch, 519 F.2d, at 993. And "merely preparatory activities in the United States" did not suffice "to trigger application of the securities laws for injury to foreigners located abroad." Id., at 992. This required the court to distinguish between mere preparation and using the United States as a "base" for fraudulent activities in other countries. Vencap, supra, at 1017-1018. But merely satisfying the conduct test was sometimes insufficient without "`some additional factor tipping the scales'" in favor of the application of American law. Interbrew v. Edperbrascan Corp., 23 F.Supp.2d 425, 432 (S.D.N.Y. 1998) (quoting Europe & Overseas Commodity Traders, S.A. v. Banque Paribas London, 147 F.3d 118, 129 (C.A.2 1998)). District courts have noted the difficulty of applying such vague formulations. See, e.g., In re Alstom SA, 406 F.Supp.2d 346, 366-385 (S.D.N.Y.2005). There is no more damning indictment of the "conduct" and "effects" tests than the Second Circuit's own declaration that "the presence or absence of any single factor which was considered significant in other cases ... is not necessarily dispositive in future cases." IIT v. Cornfeld, 619 F.2d 909, 918 (1980) (internal quotation marks omitted).
At least one Court of Appeals has criticized this line of cases and the interpretive assumption that underlies it. In Zoelsch v. Arthur Andersen & Co., 824 F.2d 27, 32 (1987) (Bork, J.), the District of Columbia Circuit observed that rather than courts' "divining what `Congress would have wished' if it had addressed the problem[, a] more natural inquiry might be what jurisdiction Congress in fact thought about and conferred." Although tempted to apply the presumption against extraterritoriality and be done with it, see id., at 31-32, that court deferred to the Second Circuit because of its "preeminence in the field of securities law," id., at 32. See also Robinson v. TCI/US West Communications Inc., 117 F.3d 900, 906-907 (C.A.5 1997) (expressing agreement with Zoelsch's criticism of the emphasis on policy considerations in some of the cases).
Commentators have criticized the unpredictable and inconsistent application of § 10(b) to transnational cases. See, e.g., Choi & Silberman, Transnational Litigation and Global Securities Class-Action Lawsuits, 2009 Wis. L.Rev. 465, 467-468; Chang, Multinational Enforcement of U.S. Securities Laws: The Need for the Clear and Restrained Scope of Extraterritorial Subject-Matter Jurisdiction, 9 Fordham J. Corp. & Fin. L. 89, 106-108, 115-116 (2004); Langevoort, Schoenbaum Revisited: Limiting the Scope of Antifraud Protection in an Internationalized Securities Marketplace, 55 Law & Contemp. Probs. 241, 244-248 (1992). Some have challenged the premise underlying the Courts of Appeals' approach, namely that Congress did not consider the extraterritorial application of § 10(b) (thereby leaving it open to the courts, supposedly, to determine what Congress would have wanted).
The criticisms seem to us justified. The results of judicial-speculation-made-law—divining what Congress would have wanted if it had thought of the situation before the court—demonstrate the wisdom of the presumption against extraterritoriality. Rather than guess anew in each case, we apply the presumption in all cases, preserving a stable background against which Congress can legislate with predictable effects.
Rule 10b-5, the regulation under which petitioners have brought suit,
On its face, § 10(b) contains nothing to suggest it applies abroad:
Petitioners and the Solicitor General contend, however, that three things indicate that § 10(b) or the Exchange Act in general has at least some extraterritorial application.
First, they point to the definition of "interstate commerce," a term used in § 10(b), which includes "trade, commerce, transportation, or communication ... between any foreign country and any State." 15 U.S.C. § 78c(a)(17). But "we have repeatedly held that even statutes that contain broad language in their definitions of `commerce' that expressly refer to `foreign commerce' do not apply abroad." Aramco, 499 U.S., at 251, 111 S.Ct. 1227; see id., at 251-252, 111 S.Ct. 1227 (discussing cases). The general reference to foreign commerce in the definition of "interstate commerce" does not defeat the presumption against extraterritoriality.
Petitioners and the Solicitor General next point out that Congress, in describing the purposes of the Exchange Act, observed that the "prices established and offered in such transactions are generally disseminated and quoted throughout the United States and foreign countries." 15 U.S.C. § 78b(2). The antecedent of "such transactions," however, is found in the first sentence of the section, which declares that "transactions in securities as commonly conducted upon securities exchanges and over-the-counter markets are affected with a national public interest." § 78b. Nothing suggests that this national public interest pertains to transactions conducted upon foreign exchanges and markets. The fleeting reference to the dissemination and quotation abroad of the prices of securities traded in domestic exchanges and markets cannot overcome the presumption against extraterritoriality.
Finally, there is § 30(b) of the Exchange Act, 15 U.S.C. § 78dd(b), which does mention the Act's extraterritorial application: "The provisions of [the Exchange Act] or of any rule or regulation thereunder shall not apply to any person insofar as he transacts a business in securities without the jurisdiction of the United States," unless he does so in violation of regulations promulgated by the Securities and Exchange Commission "to prevent ... evasion of [the Act]." (The parties have pointed us to no regulation promulgated pursuant to § 30(b).) The Solicitor General argues that "[this] exemption would have no function if the Act did not apply in the first instance to securities transactions that occur abroad." Brief for United States as Amicus Curiae 14.
We are not convinced. In the first place, it would be odd for Congress to indicate the extraterritorial application of the whole Exchange Act by means of a provision imposing a condition precedent to its application abroad. And if the whole Act applied abroad, why would the Commission's enabling regulations be limited to those preventing "evasion" of the Act, rather than all those preventing "violation"? The provision seems to us directed at actions abroad that might conceal a
The Solicitor General also fails to account for § 30(a), which reads in relevant part as follows:
Subsection 30(a) contains what § 10(b) lacks: a clear statement of extraterritorial effect. Its explicit provision for a specific extraterritorial application would be quite superfluous if the rest of the Exchange Act already applied to transactions on foreign exchanges—and its limitation of that application to securities of domestic issuers would be inoperative. Even if that were not true, when a statute provides for some extraterritorial application, the presumption against extraterritoriality operates to limit that provision to its terms. See Microsoft Corp. v. AT & T Corp., 550 U.S. 437, 455-456, 127 S.Ct. 1746, 167 L.Ed.2d 737 (2007). No one claims that § 30(a) applies here.
The concurrence claims we have impermissibly narrowed the inquiry in evaluating whether a statute applies abroad, citing for that point the dissent in Aramco, see post, at 2891. But we do not say, as the concurrence seems to think, that the presumption against extraterritoriality is a "clear statement rule," ibid., if by that is meant a requirement that a statute say "this law applies abroad." Assuredly context can be consulted as well. But whatever sources of statutory meaning one consults to give "the most faithful reading" of the text, post, at 2892, there is no clear indication of extraterritoriality here. The concurrence does not even try to refute that conclusion, but merely puts forward the same (at best) uncertain indications relied upon by petitioners and the Solicitor General. As the opinion for the Court in Aramco (which we prefer to the dissent) shows, those uncertain indications do not suffice.
In short, there is no affirmative indication in the Exchange Act that § 10(b) applies extraterritorially, and we therefore conclude that it does not.
Petitioners argue that the conclusion that § 10(b) does not apply extraterritorially does not resolve this case. They contend that they seek no more than domestic application anyway, since Florida is where HomeSide and its senior executives engaged in the deceptive conduct of manipulating HomeSide's financial models; their
Applying the same mode of analysis here, we think that the focus of the Exchange Act is not upon the place where the deception originated, but upon purchases and sales of securities in the United States. Section 10(b) does not punish deceptive conduct, but only deceptive conduct "in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered." 15 U.S.C. § 78j(b). See SEC v. Zandford, 535 U.S. 813, 820, 122 S.Ct. 1899, 153 L.Ed.2d 1 (2002). Those purchase-and-sale transactions are the objects of the statute's solicitude. It is those transactions that the statute seeks to "regulate," see Superintendent of Ins. of N.Y. v. Bankers Life & Casualty Co., 404 U.S. 6, 12, 92 S.Ct. 165, 30 L.Ed.2d 128 (1971); it is parties or prospective parties to those transactions that the statute seeks to "protec[t]," id., at 10, 92 S.Ct. 165. See also Ernst & Ernst v. Hochfelder, 425 U.S. 185, 195, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976). And it is in our view only transactions in securities listed on domestic exchanges, and domestic transactions in other securities, to which § 10(b) applies.
The primacy of the domestic exchange is suggested by the very prologue of the Exchange Act, which sets forth as its object "[t]o provide for the regulation of securities exchanges ... operating in interstate and foreign commerce and through the mails, to prevent inequitable and unfair practices on such exchanges ...." 48 Stat. 881. We know of no one who thought that the Act was intended to "regulat[e]" foreign securities exchanges—or indeed who even believed that under established principles of international law Congress had the power to do so. The
With regard to securities not registered on domestic exchanges, the exclusive focus on domestic purchases and sales
The same focus on domestic transactions is evident in the Securities Act of 1933, 48 Stat. 74, enacted by the same Congress as the Exchange Act, and forming part of the same comprehensive regulation of securities trading. See Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N. A., 511 U.S. 164, 170-171, 114 S.Ct. 1439, 128 L.Ed.2d 119 (1994). That legislation makes it unlawful to sell a security, through a prospectus or otherwise, making use of "any means or instruments of transportation or communication in interstate commerce or of the mails," unless a registration statement is in effect. 15 U.S.C. § 77e(a)(1). The Commission has interpreted that requirement "not to include... sales that occur outside the United States." 17 CFR § 230.901 (2009).
Finally, we reject the notion that the Exchange Act reaches conduct in this country affecting exchanges or transactions abroad for the same reason that Aramco rejected overseas application of Title VII to all domestically concluded employment contracts or all employment contracts with American employers: The probability of incompatibility with the applicable laws of other countries is so obvious that if Congress intended such foreign application "it would have addressed the subject of conflicts with foreign laws and procedures." 499 U.S., at 256, 111 S.Ct. 1227. Like the United States, foreign countries regulate their domestic securities exchanges and securities transactions occurring within their territorial jurisdiction. And the regulation of other countries often differs from ours as to what constitutes fraud, what disclosures must be made, what damages are recoverable, what discovery is available in litigation, what individual actions may be joined in a single suit, what attorney's fees are recoverable, and many other matters. See, e.g., Brief for United Kingdom of Great Britain and Northern Ireland as Amicus Curiae 16-21. The Commonwealth of Australia, the United Kingdom of Great Britain and Northern Ireland, and the Republic of France have
The Solicitor General suggests a different test, which petitioners also endorse: "[A] transnational securities fraud violates [§ ]10(b) when the fraud involves significant conduct in the United States that is material to the fraud's success." Brief for United States as Amicus Curiae 16; see Brief for Petitioners 26. Neither the Solicitor General nor petitioners provide any textual support for this test. The Solicitor General sets forth a number of purposes such a test would serve: achieving a high standard of business ethics in the securities industry, ensuring honest securities markets and thereby promoting investor confidence, and preventing the United States from becoming a "Barbary Coast" for malefactors perpetrating frauds in foreign markets. Brief for United States as Amicus Curiae 16-17. But it provides no textual support for the last of these purposes, or for the first two as applied to the foreign securities industry and securities markets abroad. It is our function to give the statute the effect its language suggests, however modest that may be; not to extend it to admirable purposes it might be used to achieve.
If, moreover, one is to be attracted by the desirable consequences of the "significant and material conduct" test, one should also be repulsed by its adverse consequences. While there is no reason to believe that the United States has become the Barbary Coast for those perpetrating frauds on foreign securities markets, some fear that it has become the Shangri-La of class-action litigation for lawyers representing those allegedly cheated in foreign securities markets. See Brief for Infineon Technologies AG as Amicus Curiae 1-2, 22-25; Brief for European Aeronautic Defence & Space Co. N.V. et al. as Amici Curiae 2-4; Brief for Securities Industry and Financial Markets Association et al. as Amici Curiae 10-16; Coffee, Securities Policeman to the World? The Cost of Global Class Actions, N.Y.L.J. 5 (2008); S. Grant & D. Zilka, The Current Role of Foreign Investors in Federal Securities Class Actions, PLI Corporate Law and Practice Handbook Series, PLI Order No. 11072, pp. 15-16 (Sept.-Oct.2007); Buxbaum, Multinational Class Actions Under Federal Securities Law: Managing Jurisdictional Conflict, 46 Colum. J. Transnat'l L. 14, 38-41 (2007).
As case support for the "significant and material conduct" test, the Solicitor General relies primarily on Pasquantino v. United States, 544 U.S. 349, 125 S.Ct. 1766, 161 L.Ed.2d 619 (2005).
The Solicitor General points out that the "significant and material conduct" test is in accord with prevailing notions of international comity. If so, that proves that if the United States asserted prescriptive jurisdiction pursuant to the "significant and material conduct" test it would not violate customary international law; but it in no way tends to prove that that is what Congress has done.
Finally, the Solicitor General argues that the Commission has adopted an interpretation similar to the "significant and material conduct" test, and that we should defer to that. In the two adjudications the Solicitor General cites, however, the Commission did not purport to be providing its own interpretation of the statute, but relied on decisions of federal courts— mainly Court of Appeals decisions that in turn relied on the Schoenbaum and Leasco decisions of the Second Circuit that we discussed earlier. See In re United Securities Clearing Corp., 52 S.E.C. 92, 95, n. 14, 96, n. 16 (1994); In re Robert F. Lynch, Exchange Act Release No. 11737, 8 S.E.C. Docket 75, 77, n. 15 (1975). We need "accept only those agency interpretations that are reasonable in light of the principles of construction courts normally employ." Aramco, 499 U.S., at 260, 111 S.Ct. 1227 (SCALIA, J., concurring in part and concurring in judgment). Since the Commission's interpretations relied on cases we disapprove, which ignored or discarded
* * *
Section 10(b) reaches the use of a manipulative or deceptive device or contrivance 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 case involves no securities listed on a domestic exchange, and all aspects of the purchases complained of by those petitioners who still have live claims occurred outside the United States. Petitioners have therefore failed to state a claim on which relief can be granted. We affirm the dismissal of petitioners' complaint on this ground.
It is so ordered.
Justice SOTOMAYOR took no part in the consideration or decision of this case.
Justice BREYER, concurring in part and concurring in the judgment.
Section 10(b) of the Securities Exchange Act of 1934 applies to fraud "in connection with" two categories of transactions: (1) "the purchase or sale of any security registered on a national securities exchange" or (2) "the purchase or sale of ... any security not so registered." 15 U.S.C. § 78j(b). In this case, the purchased securities are listed only on a few foreign exchanges, none of which has registered with the Securities and Exchange Commission as a "national securities exchange." See § 78f. The first category therefore does not apply. Further, the relevant purchases of these unregistered securities took place entirely in Australia and involved only Australian investors. And in accordance with the presumption against extraterritoriality, I do not read the second category to include such transactions. Thus, while state law or other federal fraud statutes, see, e.g., 18 U.S.C. § 1341 (mail fraud), § 1343 (wire fraud), may apply to the fraudulent activity alleged here to have occurred in the United States, I believe that § 10(b) does not. This case does not require us to consider other circumstances.
To the extent the Court's opinion is consistent with these views, I join it.
Justice STEVENS, with whom Justice GINSBURG joins, concurring in the judgment.
While I agree that petitioners have failed to state a claim on which relief can be granted, my reasoning differs from the Court's. I would adhere to the general approach that has been the law in the Second Circuit, and most of the rest of the country, for nearly four decades.
Today the Court announces a new "transactional test," ante, at 2886, for defining the reach of § 10(b) of the Securities Exchange Act of 1934 (Exchange Act), 15 U.S.C. § 78j(b), and SEC Rule 10b-5, 17 CFR § 240.10b-5(b) (2009): Henceforth, those provisions will extend only to "transactions in securities listed on domestic exchanges... and domestic transactions in other securities," ante, at 2884. If one confines one's gaze to the statutory text, the Court's conclusion is a plausible one. But the federal courts have been construing § 10(b) in a different manner for a long time, and the Court's textual analysis is not nearly so compelling, in my view, as to warrant the abandonment of their doctrine.
The text and history of § 10(b) are famously opaque on the question of when, exactly, transnational securities frauds fall within the statute's compass. As those types of frauds became more common in the latter half of the 20th century, the
The Second Circuit's test became the "north star" of § 10(b) jurisprudence, ante, at 2879, not just regionally but nationally as well. With minor variations, other courts converged on the same basic approach.
In light of this history, the Court's critique of the decision below for applying "judge-made rules" is quite misplaced. Ante, at 2881. This entire area of law is replete with judge-made rules, which give concrete meaning to Congress' general commands.
The development of § 10(b) law was hardly an instance of judicial usurpation. Congress invited an expansive role for judicial elaboration when it crafted such an open-ended statute in 1934. And both Congress and the Commission subsequently affirmed that role when they left intact the relevant statutory and regulatory language, respectively, throughout all the years that followed. See Brief for Alecta pensionsförsäkring, ömsesidigt et al. as Amici Curiae 31-33; cf. Musick, Peeler & Garrett v. Employers Ins. of Wausau, 508 U.S. 286, 294, 113 S.Ct. 2085, 124 L.Ed.2d 194 (1993) (inferring from recent legislation Congress' desire to "acknowledg[e]" the 10b-5 action without "entangling" itself in the precise formulation thereof). Unlike certain other domains of securities law, this is "a case in which Congress has enacted a regulatory statute and then has accepted, over a long period of time, broad judicial authority to define substantive standards of conduct and liability," and much else besides. Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 163, 128 S.Ct. 761, 169 L.Ed.2d 627 (2008).
This Court has not shied away from acknowledging that authority. We have consistently confirmed that, in applying § 10(b) and Rule 10b-5, courts may need "to flesh out the portions of the law with respect to which neither the congressional enactment nor the administrative regulations offer conclusive guidance." Blue Chip, 421 U.S., at 737, 95 S.Ct. 1917. And we have unanimously "recogniz[ed] a judicial authority to shape ... the 10b-5 cause of action," for that is a task "Congress has left to us." Musick, Peeler, 508 U.S., at 293, 294, 113 S.Ct. 2085; see also id., at 292, 113 S.Ct. 2085 (noting with approval that "federal courts have accepted and exercised the principal responsibility for the continuing elaboration of the scope of the 10b-5 right and the definition of the duties it imposes"). Indeed, we have unanimously endorsed the Second Circuit's basic interpretive approach to § 10(b)—ridiculed by the Court today—of striving to "divin[e] what Congress would have wanted," ante, at 2881.
Thus, while the Court devotes a considerable amount of attention to the development of the case law, ante, at 2877-2880, it draws the wrong conclusions. The Second Circuit refined its test over several decades and dozens of cases, with the tacit approval of Congress and the Commission
The Court's other main critique of the Second Circuit's approach—apart from what the Court views as its excessive reliance on functional considerations and reconstructed congressional intent—is that the Second Circuit has "disregard[ed]" the presumption against extraterritoriality. Ante, at 2877. It is the Court, however, that misapplies the presumption, in two main respects.
First, the Court seeks to transform the presumption from a flexible rule of thumb into something more like a clear statement rule. We have been here before. In the case on which the Court primarily relies, EEOC v. Arabian American Oil Co., 499 U.S. 244, 111 S.Ct. 1227, 113 L.Ed.2d 274 (1991) (Aramco), Chief Justice Rehnquist's majority opinion included a sentence that appeared to make the same move. See id., at 258, 111 S.Ct. 1227 ("Congress' awareness of the need to make a clear statement that a statute applies overseas is amply demonstrated by the numerous occasions on which it has expressly legislated the extraterritorial application of a statute"). Justice Marshall, in dissent, vigorously objected. See id., at 261, 111 S.Ct. 1227 ("[C]ontrary to what one would conclude from the majority's analysis, this canon is not a `clear statement' rule, the application of which relieves a court of the duty to give effect to all available indicia of the legislative will").
Yet even Aramco—surely the most extreme application of the presumption against extraterritoriality in my time on the Court
Second, and more fundamentally, the Court errs in suggesting that the presumption against extraterritoriality is fatal to the Second Circuit's test. For even if the presumption really were a clear statement (or "clear indication," ante, at 2877, 2883) rule, it would have only marginal relevance to this case.
It is true, of course, that "this Court ordinarily construes ambiguous statutes to avoid unreasonable interference with the sovereign authority of other nations," F. Hoffmann-La Roche Ltd. v. Empagran S. A., 542 U.S. 155, 164, 124 S.Ct. 2359, 159 L.Ed.2d 226 (2004), and that, absent contrary evidence, we presume "Congress is primarily concerned with domestic conditions," Foley Bros., Inc. v. Filardo, 336 U.S. 281, 285, 69 S.Ct. 575, 93 S.Ct. 680 (1949). Accordingly, the presumption against extraterritoriality "provides a sound basis for concluding that Section 10(b) does not apply when a securities fraud with no effects in the United States is hatched and executed entirely outside this country." Brief for United States as Amicus Curiae 22. But that is just about all it provides a sound basis for concluding. And the conclusion is not very illuminating, because no party to the litigation disputes it. No one contends that § 10(b) applies to wholly foreign frauds.
Rather, the real question in this case is how much, and what kinds of, domestic contacts are sufficient to trigger application of § 10(b).
The question just stated does not admit of an easy answer. The text of the Exchange Act indicates that § 10(b) extends to at least some activities with an international component, but, again, it is not pellucid as to which ones.
This approach is consistent with the understanding shared by most scholars that Congress, in passing the Exchange Act, "expected U.S. securities laws to apply to certain international transactions or conduct." Buxbaum, Multinational Class Actions Under Federal Securities Law: Managing Jurisdictional Conflict, 46 Colum. J. Transnat'l L. 14, 19 (2007); see also Leasco Data Processing Equip. Corp. v. Maxwell, 468 F.2d 1326, 1336 (C.A.2 1972) (Friendly, J.) (detailing evidence that Congress "meant § 10(b) to protect against fraud in the sale or purchase of securities whether or not these were traded on organized United States markets"). It is also consistent with the traditional understanding, regnant in the 1930's as it is now, that the presumption against extraterritoriality does not apply "when the conduct [at issue] occurs within the United States," and has lesser force when "the failure to extend the scope of the statute to a foreign setting will result in adverse effects within the United States." Environmental Defense Fund, Inc. v. Massey, 986 F.2d 528, 531 (C.A.D.C.1993); accord, Restatement (Second) of Foreign Relations Law of the United States § 38 (1964-1965); cf. Small v. United States, 544 U.S. 385, 400, 125 S.Ct. 1752, 161 L.Ed.2d 651 (2005) (THOMAS, J., joined by SCALIA and KENNEDY, JJ., dissenting) (presumption against extraterritoriality "lend[s] no support" to a "rule restricting a federal statute from reaching conduct within U.S. borders"); Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 705, 82 S.Ct. 1404, 8 L.Ed.2d 777 (1962) (presumption against extraterritoriality not controlling "[s]ince the activities of the defendants had an impact within the United States and upon its foreign trade"). And it strikes a reasonable balance between the goals of "preventing the export of fraud from America," protecting shareholders, enhancing investor confidence,
Thus, while § 10(b) may not give any "clear indication" on its face as to how it should apply to transnational securities frauds, ante, at 2877, 2883, it does give strong clues that it should cover at least some of them, see n. 9, supra. And in my view, the Second Circuit has done the best job of discerning what sorts of transnational frauds Congress meant in 1934—and still means today—to regulate. I do not take issue with the Court for beginning its inquiry with the statutory text, rather than the doctrine in the Courts of Appeals. Cf. ante, at 2884, n. 9. I take issue with the Court for beginning and ending its inquiry with the statutory text, when the text does not speak with geographic precision, and for dismissing the long pedigree of, and the persuasive account of congressional intent embodied in, the Second Circuit's rule.
Repudiating the Second Circuit's approach in its entirety, the Court establishes a novel rule that will foreclose private parties from bringing § 10(b) actions whenever the relevant securities were purchased or sold abroad and are not listed on a domestic exchange.
Imagine, for example, an American investor who buys shares in a company listed only on an overseas exchange. That company has a major American subsidiary with executives based in New York City; and it was in New York City that the executives masterminded and implemented a massive deception which artificially inflated the stock price—and which will, upon its disclosure, cause the price to plummet. Or, imagine that those same executives go knocking on doors in Manhattan and convince an unsophisticated retiree, on the basis of material misrepresentations, to invest her life savings in the company's doomed securities. Both of these investors would, under the Court's new test, be barred from seeking relief under § 10(b).
The oddity of that result should give pause. For in walling off such individuals from § 10(b), the Court narrows the provision's reach to a degree that would surprise and alarm generations of American investors—and, I am convinced, the Congress that passed the Exchange Act. Indeed, the Court's rule turns § 10(b) jurisprudence (and the presumption against extraterritoriality) on its head, by withdrawing the statute's application from cases in which there is both substantial wrongful conduct that occurred in the United States and a substantial injurious effect on United States markets and citizens.
In my judgment, if petitioners' allegations of fraudulent misconduct that took place in Florida are true, then respondents may have violated § 10(b), and could potentially be held accountable in an enforcement proceeding brought by the Commission. But it does not follow that shareholders who have failed to allege that the bulk or the heart of the fraud occurred in the United States, or that the fraud had an adverse impact on American investors or markets, may maintain a private action to recover damages they suffered abroad. Some cases involving foreign securities transactions have extensive links to, and ramifications for, this country; this case has Australia written all over it. Accordingly, for essentially the reasons stated in the Court of Appeals' opinion, I would affirm its judgment.
The Court instead elects to upend a significant area of securities law based on a plausible, but hardly decisive, construction of the statutory text. In so doing, it pays short shrift to the United States' interest in remedying frauds that transpire on American soil or harm American citizens, as well as to the accumulated wisdom and experience of the lower courts. I happen to agree with the result the Court reaches in this case. But "I respectfully dissent," once again, "from the Court's continuing campaign to render the private cause of action under § 10(b) toothless." Stoneridge, 552 U.S., at 175, 128 S.Ct. 761 (STEVENS, J., dissenting).
"Every person who, directly or indirectly, controls any person liable under any provision of [the Exchange Act] or of any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action."
Liability under § 20(a) is obviously derivative of liability under some other provision of the Exchange Act; § 10(b) is the only basis petitioners asserted.
"The district courts of the United States ... shall have exclusive jurisdiction of violations of [the Exchange Act] or the rules and regulations thereunder, and of all suits in equity and actions at law brought to enforce any liability or duty created by [the Exchange Act] or the rules and regulations thereunder."
The concurrence also makes the curious criticism that our evaluation of where a putative violation occurs is based on the text of § 10(b) rather than the doctrine in the Courts of Appeals. Post, at 2888-2889. Although it concedes that our test is textually plausible, post, at 2888, it does not (and cannot) make the same claim for the Court-of-Appeals doctrine it endorses. That is enough to make our test the better one.