US securities cases to be heard at state level
20 May 2016 New Jersey
Image: Shutterstock
More US securities litigation cases may now be heard in state courts rather than at the federal level, following the unanimous ruling by the US Supreme Court on a case of alleged naked short selling.
In the recent verdict to the case of Merrill Lynch, Pierce, Fenner & Smith v Manning, the highest court in the US held that “the exclusive jurisdiction of securities claims in federal court provided by the Securities Exchange Act is limited to claims ‘arising under’ the Exchange Act”.
The case was brought by the plaintiff in New Jersey’s state court, alleging that several financial institutions facilitated and engaged in naked short sales of stock, causing a devaluation in value.
In the US, naked short sales are regulated at the federal level by Securities and Exchange Commission Regulation SHO, which prohibits short sellers from intentionally failing to deliver securities.
The allegations held that the short sales in question violated Regulation SHO but the plaintiff only asserted New Jersey statutory and common law claims, without citing any federal securities laws.
In a note for clients on the ruling, US law firm Kaye Scholer suggested the new precedent may be a boon for plaintiffs that have been campaigning for securities litigation cases at a state level in an attempt to “find more plaintiff friendly fora or to avoid automatic discovery stays imposed by federal law”.
In the recent verdict to the case of Merrill Lynch, Pierce, Fenner & Smith v Manning, the highest court in the US held that “the exclusive jurisdiction of securities claims in federal court provided by the Securities Exchange Act is limited to claims ‘arising under’ the Exchange Act”.
The case was brought by the plaintiff in New Jersey’s state court, alleging that several financial institutions facilitated and engaged in naked short sales of stock, causing a devaluation in value.
In the US, naked short sales are regulated at the federal level by Securities and Exchange Commission Regulation SHO, which prohibits short sellers from intentionally failing to deliver securities.
The allegations held that the short sales in question violated Regulation SHO but the plaintiff only asserted New Jersey statutory and common law claims, without citing any federal securities laws.
In a note for clients on the ruling, US law firm Kaye Scholer suggested the new precedent may be a boon for plaintiffs that have been campaigning for securities litigation cases at a state level in an attempt to “find more plaintiff friendly fora or to avoid automatic discovery stays imposed by federal law”.
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