The US Securities and Exchange Commission (SEC) has issued an interesting settlement decision in a securities fraud case, where the two targets of the investigation were both resident in India. The two individuals were investigated by the SEC for a securities offering fraud and, to escape prosecution, they entered into a settlement agreement with the SEC, under which they accepted certain penalties and restrictions from dealing in securities. Interestingly, the settlement agreement (link above) notes that they don’t admit any of matters alleged against them, except the SEC’s jurisdiction over both them and the subject matter of the proceedings.
Sounds like a standard phrase, you say? Why is that interesting, you say? Well, consider the facts: the two individuals never left India and ran their fraudulent enterprise entirely by way of a website and social media platforms (Facebook and YouTube, in particular). They clearly intended to target American victims (more about which below), but the entire impact of their scheme on the US appears to be that, at one point, there were about 200 hits per day on their website from the US. Any regulatory or prosecutorial proceedings against them would immediately start to smell of an exercise of extraterritorial jurisdiction, which is often unlawful or at least controversial.
However, as readers of our book know (particularly Chapters 2 and 8), states can assume territorial jurisdiction over cases where, while not all of the impugned conduct took place on the state’s territory, there was a certain amount of impact on the state’s territory, to the extent that it would be agreeable to other states that the investigating state take jurisdiction. In Canada we would employ the Libman test and say that the government could do this if: 1) there is a real and substantial connection between the conduct of the individuals and Canada’s territory; and 2) it would not offend international comity for Canada to assume jurisdiction. The US has a similar approach, as do many states. In international law terms this is known as qualified or extended territoriality.
In paragraph 24 of the decision, the SEC displays what I read as concern with demonstrating that the US actually does have jurisdiction over the case. This is clearly not because it is necessary to do so in the purely domestic context (remember, the individuals have conceded that the SEC “has jurisdiction,” which could be read as including territorial jurisdiction), but rather seems designed to demonstrate for outside readers — say, the government of India? — that US is within its international legal rights to assume jurisdiction:
The Respondents offered investments in the United States and their conduct took place on U.S. territory. Their investment scheme also was directed at United States investors, and the scheme had foreseeable and substantial effects in the United States. Among other things, the Website used the “.com” domain name for global reach and appeal, was registered claiming a physical location and point of contact within the United States, and contained writing in American English, using American spelling and the “$” sign. Respondents’ related social media sites, directed to attracting and funneling investors to the Website via Facebook, YouTube and GooglePlus, were likewise written in American English and designed to solicit United States investors. By mid-January 2014, the Respondents’ Website had more than 200 visitors per day from the United States.
I don’t find the statement that “their conduct took place on US territory” entirely convincing, unless one is willing to accept that individuals from the US visiting the website and, I suppose, the use of US-based social media companies, substantiates the claim. Even then, it’s entirely possible that any touching of Facebook, YouTube or Google was in Ireland or elsewhere. However, the issue is not whether “one” would accept this assertion of jurisdiction, but whether India and other states would, since the international legality of these assertions of jurisdiction depends entirely on their acceptance by other states. Given the statement regarding the targeting of US citizens, the use of the $ sign, etc., this looks a bit like an application of the “effects doctrine” which has controversially been asserted by the US in antitrust matters before.
I would be interested to hear what the government of India has to say on the matter, particularly given that this is not just an assertion of qualified territorial jurisdiction on the prescriptive level (ie passing the laws) but also of enforcement jurisdiction, as the individuals were clearly compelled by the force of US law into agreeing to the settlement order. Extraterritorial enforcement jurisdiction is much more likely to be dimly viewed by the states affected. Either way, it’s a fascinating view of how extraterritorial jurisdiction is exercised by an entity outside the usual criminal/prosecutorial stable.