115th CONGRESS 2d Session |
To provide for exclusive Federal jurisdiction over civil securities fraud actions, and for other purposes.
February 15, 2018
Mr. MacArthur (for himself, Mr. Davidson, Ms. Tenney, and Mr. McHenry) introduced the following bill; which was referred to the Committee on Financial Services
To provide for exclusive Federal jurisdiction over civil securities fraud actions, and for other purposes.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
This Act may be cited as the “Securities Fraud Act of 2018”.
Congress finds the following:
(1) Companies engaged in interstate commerce and publicly traded on national exchanges face unique challenges, operating often in every United States jurisdiction, under a variety of civil securities fraud statutes (“blue sky laws”) that can overlap or contradict each other and Federal law.
(2) Civil and criminal fraud have inherent differences in affect and burden of proof. States have a unique interest in prosecuting criminal fraud that should be maintained.
(3) Imposing differing State regulatory requirements for civil securities fraud on national markets increases risk, creates inefficiencies, raises costs, and can harm the efficient operation of these critical markets, without providing material investor protection benefits.
(4) Complying with dual regulatory regimes places America’s public companies at a unique competitive disadvantage in an increasing global marketplace.
(5) Reputational risk for United States publicly traded companies accused of “civil fraud” in State civil enforcement actions, often based on State law standards that differ from Federal law that otherwise governs these national markets, can cause immediate and irreparable financial harm to shareholders and unnecessary loss of jobs, even after such allegations are later found to be baseless.
(6) As of June 2017, there were 5,734 public companies, little more than in 1982, when the economy was less than half its current size. The lack of a uniform standard for public companies is a contributing factor to the declining interest in the United States public market, harming the United States economy and reducing investment opportunities for the United States public.
(7) The Commerce Clause, found in article I, section 8, clause 3 of the Constitution, explicitly states that the United States Congress shall have power “To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes”. Interstate Commerce is an explicitly Federal responsibility, and companies actively engaging in commerce across State lines and raising capital on national markets should be primarily regulated by the Federal Government’s uniform anti-fraud standard.
(8) In the past, Congress has exercised this authority in regards to State securities preemption with both the Private Securities Litigation Reform Act (“PSLRA”), which was designed to curb abusive Federal class actions (Public Law 104–67), and the National Securities Markets Improvements Act (“NSMIA”) to ensure that States could not impose their own views of what should or should not be included in registration statements filed in connection with nationally traded securities (Public Law 104–290).
(9) It is in the public interest to establish preemption of Federal regulators and courts over civil securities fraud, eliminating concurrent Federal and State jurisdiction over the specific companies covered by this Act.
SEC. 3. Federal jurisdiction over securities fraud.
(a) Securities Exchange Act of 1934.—The Securities Exchange Act of 1934 is amended by inserting after section 21F (15 U.S.C. 78u–6) the following:
“SEC. 21G. Federal jurisdiction over securities fraud.
“(a) In general.—No law, rule, regulation, judgment, agreement, order, or other action of any State or political subdivision thereof, shall regulate securities fraud with respect to an issuer.
“(b) Actions brought exclusively in Federal court.—The district courts of the United States shall have original and exclusive jurisdiction over any civil action alleging securities fraud with respect to an issuer, and any such action brought in any State court shall be removable to the Federal district court for the district in which the action is pending.
“(c) Preservation of State authority.—Consistent with this section, the securities commission (or agency or office performing like functions) of any State shall retain jurisdiction under the laws of such State to investigate and bring—
“(1) civil enforcement actions with respect to fraud or deceit, or unlawful conduct in connection with securities or securities transactions other than in connection with a covered security or transactions of a covered security; and
“(2) criminal enforcement actions with respect to fraud or deceit, or unlawful conduct in connection with a covered security or transactions of a covered security provided such State criminal enforcement actions shall comply in all respects with the legal requirements for securities fraud under Federal law.
“(d) Effect.—These provisions shall be effective notwithstanding any other provision of law and shall supersede any previously enacted conflicting provisions.
“(e) Definitions.—In this section—
“(1) SECURITIES FRAUD.—The term ‘securities fraud’ means any misrepresentation, omission, or manipulative or deceptive conduct knowingly or unknowingly made or engaged in connection with a covered security or transaction of a covered security.
“(2) COVERED SECURITY.—A security is a ‘covered security’ if such security is—
“(A) (i) listed, or authorized for listing, on the New York Stock Exchange or the National Market System of the Nasdaq Stock Market (or any successor to such entities);
“(ii) listed, or authorized for listing, on a national securities exchange (or tier or segment thereof) that has listing standards that the Commission determines by rule (on its own initiative or on the basis of a petition) are substantially similar to the listing standards applicable to securities described in subparagraph (A); or
“(iii) a security of the same issuer that is equal in seniority or that is a senior security to a security described in subparagraph (A) or (B); and
“(B) issued by a company engaged in interstate commerce.”.
(b) Securities Act of 1933.—The Securities Act of 1933 is amended by inserting after section 28 (15 U.S.C. 77z–3) the following new section:
“SEC. 29. Federal jurisdiction over securities fraud.
“(a) In general.—No law, rule, regulation, judgment, agreement, order, or other action of any State or political subdivision thereof, shall regulate securities fraud with respect to an issuer.
“(b) Actions brought exclusively in Federal court.—The district courts of the United States shall have original and exclusive jurisdiction over any civil action alleging securities fraud with respect to an issuer, and any such action brought in any State court shall be removable to the Federal district court for the district in which the action is pending.
“(c) Preservation of State authority.—Consistent with this section, the securities commission (or agency or office performing like functions) of any State shall retain jurisdiction under the laws of such State to investigate and bring—
“(1) civil enforcement actions with respect to fraud or deceit, or unlawful conduct in connection with securities or securities transactions other than in connection with a covered security or transactions of a covered security; and
“(2) criminal enforcement actions with respect to fraud or deceit, or unlawful conduct in connection with a covered security or transactions of a covered security provided such State criminal enforcement actions shall comply in all respects with the legal requirements for securities fraud under Federal law.
“(d) Effect.—These provisions shall be effective notwithstanding any other provision of law and shall supersede any previously enacted conflicting provisions.
“(e) Definitions.—In this section—
“(1) SECURITIES FRAUD.—The term ‘securities fraud’ means any misrepresentation, omission, or manipulative or deceptive conduct knowingly or unknowingly made or engaged in connection with a covered security or transaction of a covered security.
“(2) COVERED SECURITY.—A security is a ‘covered security’ if such security is—
“(A) (i) listed, or authorized for listing, on the New York Stock Exchange or the National Market System of the Nasdaq Stock Market (or any successor to such entities);
“(ii) listed, or authorized for listing, on a national securities exchange (or tier or segment thereof) that has listing standards that the Commission determines by rule (on its own initiative or on the basis of a petition) are substantially similar to the listing standards applicable to securities described in subparagraph (A); or
“(iii) a security of the same issuer that is equal in seniority or that is a senior security to a security described in subparagraph (A) or (B); and
“(B) issued by a company engaged in interstate commerce.”.