SEC commissioner urges U.S. investor-rights action

WASHINGTON Thu Apr 12, 2012 4:21pm EDT

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WASHINGTON (Reuters) - A commissioner with the U.S. Securities and Exchange Commission is calling for Congress to take action to help investors after a 2010 Supreme Court decision greatly restricted them from suing foreign companies for fraud.

The comments by Luis Aguilar, a Democratic member of the SEC, came in response to a study released by the agency earlier this week.

The SEC study was conducted in response to a June 2010 Supreme Court case, Morrison v. National Australia Bank Ltd. The ruling prevented investors from filing fraud claims against companies that are not traded on a U.S. exchange.

Since that decision, the vast majority of securities fraud claims against foreign companies that had been filed in U.S. courts have been wiped out, leaving investors with one less tool to combat potential securities fraud.

Aguilar said the ruling has had a very negative impact on investor protection, and that Congress should take action so that investors can once again have their day in court.

"Properly functioning financial markets require the protection of investors' rights. U.S. investors expect to be protected by U.S. securities laws, regardless of where the securities transaction ultimately occurs," Aguilar wrote in a response to the SEC study.

"It is my view that investors should have a private right of action under the antifraud provisions of the Exchange Act in transnational securities fraud cases."

When the Morrison decision first came out, it not only affected investors, but it also hampered both the SEC and the U.S. Department of Justice's ability to sue for transnational fraud.

Congress quickly righted this problem for the SEC and the DOJ just a month later with the passage of the 2010 Dodd-Frank law, which restored the agencies' ability to bring cases with a more global reach as long as they met certain conditions.

Congress stopped short, however, of extending that same privilege to investors. Instead, Congress directed the SEC to study the issue and provide any recommendations on whether to change the law.

In order to release the study to Congress this week, all five commissioners at the SEC had to vote on it.

Aguilar's 12-page statement gave a dissenting view on the study, which he said was disappointing because it failed to take a stand for investors or make any specific recommendations.

He also said he was upset that at one point in the study, the SEC said a possible option for Congress would be to take no action in this area.

"The study falls far short of providing Congress with an informed recommendation and falls far short in fulfilling the Commission's mission to protect investors," he said.

A spokesman for the Senate Banking Committee, which has jurisdiction over the SEC, said the chairman is still reviewing the SEC's report.

(Reporting By Sarah N. Lynch; editing by Matthew Lewis)

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