NEW YORK, September 26, 2012 – LawFuel.com Law Newswire – In the September issue of Financial Fraud Law Report, Baker Botts Partner Yasho Lahiri wrote about a recent decision by a federal district court in New York that may well provide the Second Circuit Court of Appeals with the opportunity to determine the extent of extraterritorial application of the Investment Advisers Act in SEC civil actions in the relatively near future.
On May 9, 2012, Judge Robert Sweet of the United States District Court for the Southern District of New York denied the defendant’s motion to dismiss in SEC v. Gruss.
In Gruss, the SEC brought claims for aiding and abetting violations of the anti-fraud provisions of the Investment Advisers Act of 1940 against Gruss, a New York-based hedge fund manager’s chief financial officer, for improperly transferring funds between on- and offshore accounts, misappropriating cash from an offshore fund for repayment of an onshore fund’s credit facility, withdrawing management fees from clients’ accounts early, and misusing onshore and client funds to purchase an airplane. Gruss moved to dismiss the SEC’s complaint on the basis, among other things, that the Investment Advisers Act did not apply with respect to his conduct regarding the offshore fund.
Lahiri wrote that in denying Gruss’s motion to dismiss, the court upheld the applicability of the Investment Advisers Act to Gruss, distinguishing the Supreme Court’s Morrison v. National Australia Bank, Ltd.3 decision of the prior term. In Morrison, the Court had articulated a transactional test for private civil actions under Rule 10b-5, which it applied to determine that foreign plaintiffs’ claims against foreign issuers based upon foreign conduct could not give rise to private civil liability under Rule 10b-5.
The complete Financial Fraud Law Report article is available here.
About Baker Botts
Baker Botts is an international law firm with over 725 lawyers and a network of 14 offices around the globe. Based on our experience and knowledge of our clients’ industries, we are recognized as a leading firm in the energy, technology and life sciences sectors. Throughout our 172-year history, we have provided creative and effective legal solutions for our clients while demonstrating an unrelenting commitment to excellence. For more information, please visit www.bakerbotts.com.