Europe and Overseas Commodity Traders, S.A. (“EOC”), a Panamanian corporation, appeals from a final judgment dismissing EOC’s complaint pursuant to a Memorandum-Decision of the United States District Court for the Southern District of New York, Barbara S. Jones, Judge, dated June 19, 1996, as amended June 28, 1996. Europe and Overseas Commodity Traders, S.A. v. Banque Paribas London,
The transaction underlying this dispute is entirely foreign inasmuch as there is no U.S. party, but not, strictly speaking, wholly extraterritorial in that EOC alleges that an offer to sell foreign securities was made over the telephone and facsimile to its sole shareholder and agent, Aan Carr, who was in Florida, and both parties agree that orders to purchase securities were placed from Florida.. We therefore address the question whether phone calls and-facsimiles to a person on U.S. soil provide enough of a connection to the United States to implicate the registration and fraud provisions of U.S. securities laws, and give us jurisdiction thereunder.
EOC’s complaint, filed on October 14,1994, asserts eleven claims. Five are based on federal securities law including the sale of unregistered securities pursuant to Section 12 of the 1933 Act, 15 U.S.C. § 771(1); sale of securities of an unregistered investment company pursuant to the Investment Company Act of 1940, 15 U.S.C. § 80a-7 et seq.; false and misleading statements pursuant to Section 12' of the 1933 Act, 15 U.S.C. § 771(2); deceptive practices pursuant to Section 10b of the 1934 Act, 15 U.S.C. § 78j and Rule 10b-5, 17 C.F.R. § 240.10b-5; and control person liability pursuant to 15 U.S.C. § 78t. The remaining claims are based on Florida Blue Sky laws and Florida common law.
Defendants, in April of 1995 and prior.to any discovery, moved to dismiss the complaint for -lack of subject matter jurisdiction, lack of personal jurisdiction over'three of the defendants; and forum non conveniens. A-though defendants sought permission from the district court also to move for dismissal on the grounds of failure to state a cause of action, the district court ordered the defendants to address only the jurisdictional and forum non conveniens issues. See Order dated March 14, 1995, 94 Civ. 7471 (Batts, Deborah A., Judge). Paribas submitted declarations - from A’ida; John Baker, the Compliance Officer of the London branch of Paribas; Pierre Corbiau, Secretary of the Fund; Denis Coulon, Director of PAM; and Andrew Charles Smith, a member of the Bar of England and Wales experienced in the commercial and business law of England. The bank also offered a copy of its Investment Agreement with.EOC. EOC submitted a declaration of Carr. Mter a hearing, the district court requested additional informa
I.
Facts
The facts of this case, though disputed, are sparse. We nevertheless attempt to sketch them in sufficient detail to provide background for the opinion that follows. In so doing, we state the allegations of the complaint, but also indicate some of the points which the defendants strongly dispute.
EOC’s account at Paribas was established in London in 1992. The “Non-discretionary Investment Agreement” between EOC and Paribas was executed on October 22,1992, by EOC directors Ian F. Leger and Herbert W. Marvelly. In this agreement, EOC gave a corporate registration address in Panama and a mailing address in Monaco. The company also represented that its directors’ meetings take place in Monaco, and named an agent for service of process in England.
In October of 1993, Carr was visiting England, as he often does in the autumn. Arida, on October 7, there informed him that a substantial amount of cash had accumulated in EOC’s account, and offered to recommend an attractive investment opportunity for the money. Carr says he expressed interest in the proposal, but explained to Arida that he was preparing to leave for Florida on the 9th and that he would be happy to hear more after his arrival.
In a series of telephone conversations which began on October 14, Carr and Arida resumed them discussion of EOC’s investment in the Fund as planned after Carr’s arrival in Florida. The parties agree that each party initiated at least some of these calls. Carr claims that these conversations with Arida were their first significant discussion of the Fund. Carr also alleges that Arida misled him by conveying the following facts, which EOC now claims are not accurate: (a) the Fund was overseen by Paribas’s proprietary trading desk; (b) the investors’ capital in the Fund was traded along with Paribas’s own capital; and (c) the Fund traded securities based primarily on technical as opposed to fundamental considerations. In reliance on these statements, Carr says that from Florida he ordered EOC’s first purchase of shares of the Fund on October 18, 1993. He also alleges that these representations were repeated on the occasion of each of his subsequent six purchases which, together with the October 18 purchase, totaled some $1,800,-000. Carr further alleges that the defendants at the time of his initial purchase
Arida disputes this version of the events. He claims that his first significant conversation with Carr about the Fund occurred while Carr was still in England. He also asserts that Carr ordered the first purchase of Fund shares from England. In support of Arida’s story, Paribas offers a copy of a facsimile' transmission, dated October 8, from its London office to the Fund in Luxembourg placing an order for five shares. This transmission, which does not list a purchase price, also does not name Carr or EOC as the party for whom the transaction was made. It does, however, list an account number. Unfortunately, the record does not demonstrate whether the number identifies EOC.
EOC counters with a letter sent to Carr by Arida listing October 18 as the day of the first purchase of Fund shares and the number purchased as ten. Paribas explains that the October 8 order for five shares was combined with a second order for five shares, which was placed on October 14, to make the ten shares described in Arida’s letter. The bank further explains that a transaction ordered on the 8th would have been valued, or priced, on the 18th, because of Fund Rules. The net asset value per share of the Fund is determined weekly on each Monday that is a bank business day in Luxembourg. Shares of the Fund may only be purchased on such days. Applications to purchase shares must be received in Luxembourg • not later than 1:00 p.m. on the second business day preceding a valuation day (presumably most, often a Thursday as here). October 8, 1993, being a Friday, any application received on that day would not have been valued on the following Monday, October 11, but would have been required to wait until the next Monday, which was the 18th. Thus, Fund rules require that orders placed on the 8th and the 14th would both be finalized on October 18.
Carr, in turn, says that Paribas promised him that these rules would not apply to EOC, because of the large size of its transactions. He also avers that Arida may have misunderstood their preliminary discussion as authorization to buy, or impetuously placed the initial order before Carr had consented to the purchase. Such is the disagreement concerning the date and place of the first purchase. Both parties agree, however, that at least six buy orders were placed by Carr on behalf of EOC from his vacation home in Florida.
Sale to O’Brien.
Shortly after EOC’s first purchase, Carr says he told a Florida acquaintance, Matthew O’Brien, about the Fund, and passed along to him Arida’s description of the Fund. There is no statement in the record from O’Brien, so the following facts are drawn from Carr’s affidavit. O’Brien, in October of 1993, was a legal alien residing in a house he owned in Florida. He has since become a U.S. citizen. He contacted Paribas on Carr’s advice, and, after hearing the same alleged misrepresentations as Carr, invested at least $100,000 in the Fund. Like EOC, O’Brien sustained substantial losses.
O’Brien’s “Application Form,” which is dated October 19,1993, for the purchase of 3 shares valued at U.S. $87,000, is included in the record. O’Brien there represents his nationality as British, and gives a London address and telephone number. A typed note at thé bottom of the form explains “I am presently visiting the United States on business” and lists a mailing address and phone number in Florida. We discuss the significance of O’Brien at the end of the opinion, because the allegations concerning him have little impact on our jurisdiction over EOC’s federal claims.
District Court Findings.
The district court found that O’Brien resided in England at the time of his purchase, that plaintiff EOC’s principal place of business was in Monaco, and that the initial purchase of Fund shares occurred on October 8, 1993, a date when both parties agree Carr was' still in England. Europe and Overseas,
We do not think that the district court needed to conclude, contrary to plaintiffs assertions, that O’Brien resided in England or that the plaintiffs principal place of business was in Monaco. We think that it could have based its holding only on findings that EOC and O’Brien made such representations to Paribas, and, thus, Paribas reasonably trusted that at all times during these transactions the bank was dealing with an English individual and a Panamanian corporation with offices in Monaco.
For reasons discussed next, even accepting as true EOC’s allegations that the initial offer to sell Fund shares occurred while Carr was in Florida, the transactions between EOC and Paribas did not implicate the prescriptive jurisdiction of the federal securities laws.
II.
Discussion
Appellant EOC emphasizes in its briefs to this court that the district court did not discuss the claims at the heart of this case: sale of unregistered securities of an unregistered investment company to an individual on U.S. soil in violation of §§ 5 and 12 of the Securities Act of 1933
A. Registration under the 1933 Act.
EOC claims that the same “conduct and effects test,” which this circuit applies to determine the extraterritorial scope of the fraud provisions of the federal securities laws, should be applied to determine the appropriate reach of the federal registration requirements. The relevant “conduct,” EOC maintains, was the solicitation and sale of unregistered securities in the United States, and the relevant “effect” was the consummation of the sale of unregistered securities to a person within the United States. In other words, EOC appears to argue that any solicitation of unregistered securities within the territory of the United States is within the scope of the registration laws, and thus forbidden, without regard to the identity or nationality of any party.
The decided law of this circuit clearly states that the antifraud provisions may reach certain transactions not within the registration requirements of our securities law. Consolidated Gold Fields PLC v. Minorco, S.A.,
In contrast to the antifraud provisions of the 1934 Act, the SEC has provided some guidance as to the applicability of registration requirement of the 1933 Act to foreign transactions.
Under Regulation S, which was issued by the SEC and became effective on May 2, 1990, there are two ways that a sale of securities could fall outside § 5’s registration requirement. First, a transaction could be “outside the United States,” and, second, it could fall into either one of two exceptions defined by the SEC. As the SEC explained in the statement accompanying the new rule, Regulation S adopts a “territorial approach” to § 5.
We first examine the safe harbors to determine if either one clearly applies to this transaction. The issuer safe harbor appears to be the only exemption plausibly available to the Fund. Paribas, acting as an agent for the Fund, distributed shares to the public, bringing the bank within the definition of an issuer.. See 17 C.F.R. § 230.903. Two general conditions, however, must be met for either of the safe harbors to apply: first, no “directed selling efforts” may be made in the United States. The release defines “directed selling efforts” as marketing efforts such as mailings or seminars in the United States designed to induce the purchase of securities purportedly being distributed abroad. SEC Release No. 33-6863, 55 Fed.Reg. at 18311. Second, any offer or sale must fit the definition of an “offshore transaction,” which requires inter alia that no offer be made to a person in the United' States.
A transaction not within either of the safe harbors may still be outside of the United States within the meaning of 17 C.F.R. § 230.901. We believe the purchases by EOC ordered by Carr were such foreign transactions. Proposed versions .of Regulation S included a list of factors to be considered in determining whether an offer or sale occurs outside of the United States, but in response to comments on the proposals, the list was deleted in the final version.
We believe that the conduct and effects test used to determine the reach of the anti-fraud provisions of U.S. securities laws can be adapted to analyze what is outside the specific safe harbors yet still “outside the United States” under Regulation S. The conduct and effects test was developed by the courts in the absence of clear Congressional guidance as to the jurisdictional reach of the antifraud provisions of the securities laws. See Alfadda v. Fenn,
Congress passed the registration provisions “to assure full and fair disclosure in connection with the public distribution of securities.” James D. Cox et al., Securities Regulation 45 (1991). Through mandatory disclosure, Congress sought to promote informed investing and to deter the kind' of fraudulent salesmanship that was believed-to have led to the market collapse of 1929. Id. at 14 (citing H.R.Rep. No. 85 (1933)). The registration provisions are thus prophylactic in nature. Seen in this light, the registration provisions also can be said to aim at certain conduct with the potential for discernible effects. Specifically, the registration provisions are designed to prevent the offer of securities in the United States securities market without accompanying standardized disclosures to aid investors, a course of conduct. This conduct, in turn, has the effect of creating interest in and demand for unregistered securities. To avoid this result, in keeping with Congress’s purpose, the registration provisions should apply to those offers of unregistered securities that tend to have the effect - of creating a market for unregistered securities in the United States; and by “creating a market” we do not mean to imply that the conduct must be directed at a large number of people.
The Commissioner’s release accompanying Regulation S,.as well as the early version of Regulation S, support the application of this conduct and effects test. The factors originally listed in Regulation S pertaining to when an offer or sale of a security occurs outside the United States largely pertain to efforts to create a market in the United States for unregistered foreign securities. These factors were “the locus of the offer or sale, the absence of directed selling efforts in the United States, and the justified expectation of the parties to the transaction as to the applicability of the registration requirements of the U.S. securities laws.” Offshore Offers and Sales, Securities Act Release No. 33-6779, 53 Fed.Reg. 22661, 22661-2 (proposed June 17, 1988). Such a test-is also consistent with earlier statements by the SEC about the scope of the registration provisions. See, e.g., SEC Release No. 33-6863, 55 Fed.Reg. at 18308 (“The Commission, however, historically has recognized that registration of offerings with only incidental jurisdictional contacts should not be required.”); see also Registration of Foreign Offerings by Domestic Issuers, Securities Act Release No. 33-4708,
The nearly de minimis U.S. interest in the transactions presented in the instant case precludes our finding that U.S. jurisdiction exists under the more limited conduct and effect standard appropriate under the registration provisions of the 1933 Act. Under the facts as alleged by EOC, there was conduct in the United States because Arida called Carr here and Carr executed his order here. However, the conduct was not such as to have the effect of creating a market for those securities in the United States.' Carr’s presence here was entirely fortuitous and personal, and the actual purchaser of shares in the Fund was an offshore corporation without a place of business here.
Of course, we do not attempt in ruling on this case to provide a set of definitive rules to govern future transactions. Nor do we mean to suggest that standards developed under the anti-fraud provisions may be incorporated wholesale into the registration context. The exact contours of the conduct and effects test, as applied to registration cases, must remain to be defined on a case-by-case basis.
B. Investment Company Act of 1940.
The SEC has clearly said that compliance with Regulation S does not excuse noncompliance with the Investment Company Act of 1940.
C. Antifraud Provisions.
As discussed above, the antifraud provisions of the securities laws have been held to reach beyond the registration requirement of the 1933 Act. Our conclusion with respect to registration does not therefore eliminate the possibility that jurisdiction could be found under § 10(b) of the 1934 Act (codified at 15 U.S.C. § 78j) and Rule 10b-5 (17 C.F.R. § 240.10b-5).
Perhaps the most difficult cases under the conduct test have concerned activity in the United States that causes, or plays a substantial part in causing, harm- to foreign interests overseas. By contrast, as stated above, the effects test concerns the impact of overseas activity on U.S. investors and securities traded on U.S. securities exchanges.
If evaluated as an effect, the U.S. interest affected by this transaction is indiscernible for reasons already discussed: the plaintiff is a Panamanian corporation; the individual who placed the purchase orders, and who ultimately suffered any losses, is a Canadian citizen; the securities are not traded on a U.S. exchange; and no effect on a U.S. affiliated company is alleged by EOC. There is, thus, no U.S. entity that Congress could have wished to protect from the machinations of swindlers.
The analysis becomes somewhat more difficult when we turn to the conduct test. The conduct test in this circuit has been stated in two parts as follows:
the anti-fraud provisions of the federal securities laws ... [a]pply to losses from sales of securities to Americans resident abroad if, but only if, acts (or culpable failures to act) of material importance in the United States have significantly contributed thereto; but ... [d]o not apply to losses from sales of securities to foreigners outside the United States unless acts (or*129 culpable failures to act) within the United States directly caused such losses.
Bersch,
The facts alleged by EOC, nonetheless, satisfy the requirement that U.S. activity directly cause the harm to the foreign interest, which has in the past been the key element of litigation involving the conduct test. Or, stated in the alternative language we have sometimes used, Arida’s communications into the United States were more than “mere preparation” for the fraud. EOC alleges that Arida solicited, offered to sell, and accepted a purchase order for securities from Carr when he was in Florida. Carr also says he relied upon the allegedly misleading information given to him from abroad while he was present in the United States, and such reliance was the direct cause of the loss sustained by EOC. Cf. Fidenas,
Although phone calls (or any other communications into the United States) soliciting or conveying an offer to sell securities ordinarily would be sufficient to support jurisdiction, it would be inconsistent with the law of this circuit to accept jurisdiction over this dispute, because the surrounding circumstances show that no relevant interest of the United States was implicated. In other words, a series of calls to a transient foreign national in the United States is not enough to establish jurisdiction under the conduct test without some additional factor tipping the scales in favor of our jurisdiction. Without such added weight, the exercise of prescriptive jurisdiction by Congress would be unreasonable within the meaning of the Restatement of Foreign Relations [hereinafter Restatement] §§ 416(2) and 403 (1987),
In this case, there is no U.S. party to protect or punish, despite the fact that the most important piece of the alleged fraud— reliance on a misrepresentation — may have
This case illustrates the kind of circumstances in which it is unreasonable to prescribe rules of conduct with respect to securities fraud, even when a misrepresentation is made in the United States and reliance occurs on U.S. soil. Section 10(b), although it sounds in the common law tort of fraud, is part of a regulatory system that serves the public interest of the United States in much the same way as banking and currency regulations. This apparent purpose of protecting and regulating an entire system led this court to extend, through the use of the effects test, the antifraud provisions of these laws to activity not ordinarily within the “presumptive” scope of legislation. See Equal Employ. Opp. Comm’n v. Arabian American Oil Co.,
D. O’Brien’s relevance to this appeal.
O’Brien is not a plaintiff in this proceeding. Apparently recognizing, however, that if he were, a marginally stronger case for subject matter jurisdiction would be before us, EOC continues to press the facts of O'Brien’s case on this appeal as it did in the proceedings below. O’Brien purchased shares in his own name, rather than through an offshore company as did Carr. He also may have been a Florida resident at the time of his purchase, even though he made contrary representations to Paribas.' And, O’Brien may not have had a preexisting relationship with Paribas at the time of his purchase, but even this fact is not clear from Carr’s declarations. Indeed, we do not even know where O’Brien was at the time he executed his subscription agreement, or from where the agreement was sent. Despite EOC’s insistence, we need not decide whether we would have jurisdiction over securities fraud or registration claims brought by O’Brien, because he is not a party to this action. Cf. Fidenas,
Conclusion
The decision of the district court dismissing plaintiff EOC’s complaint for lack of subject matter jurisdiction is affirmed.
Notes
. The district court correctly relied on material outside of the complaint in ruling on the Rule 12(b)(1) motion as it would in considering a motion for summary judgment. Europe and Overseas,
. Section 12 of the 1933 Act, 15 U.S.C. § 771, creates civil liability for any person who offers or sells a security in violation of § 5 of the Act, 15 U.S.C. § 77e.
. We, of course, honor an agency’s reasonable interpretation of a statute that Congress has entrusted the agency to administer. See, e.g., Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc.,
.Although our analysis below is attentive to specific SEC regulations, it is nonetheless distinct from consideration of the merits. In this motion to dismiss for lack of subject matter jurisdiction, the only issue is whether the registration requirement of § 5 conceivably applied with respect to the parties who are resisting its application. If it does not, the parties' conduct was outside the prescriptive jurisdiction of the United States. See Bell v. Hood,
Section 5 prohibits any person from offering or selling a security in interstate commerce unless it is registered. "The elements of [an] action for violation of Section 5 arc (1) lack of a registration statement as to the subject securities; (2) the offer or sale of the securities; and (3) the use of interstate transportation or communication and the mails in connection with the offer or sale.” In re Command Credit Corp.,
. The SEC statement explains: "Rule 901(a) is a general statement of the applicability of the registration provisions of the Securities Act. The General Statement provides that any offer, offer to sell, sale, or offer to buy that occurs within the United States is subject to section 5 of the Securities Act, while any such offer or sale that occurs outside the United States is not subject to section 5. The determination as to whether a transaction is outside the United States will be based on the facts and circumstances of each case.... For a transaction to qualify under the General Statement, both the sale and the offer pursuant to which it was made must be outside the United States.” SEC Release No. 33-6863, 55 Fed.Reg. at 18309 (footnote omitted).
. The terms "directed selling efforts” and "offshore transaction” are defined with more detail respectively at 17 C.F.R. § 230.902(b) and (i).
. The deleted factors were "the locus of the offer or sale, the absence of directed selling efforts in the United States, the likelihood of the securities sold coming to rest outside the United States, and the justified expectations of the parties to the transaction as to the applicability of the registration requirements of the U.S. securities laws." Offshore Offers and Sales, Securities Act Release No. 33-6779, 53 Fed.Reg. 22661, 22661-2 (proposed June 17, 1988).
. While my colleagues do not agree, the author of this opinion would add that:
Having chosen to do business through an offshore corporation to avoid taxes and other regulatory burdens, Carr cannot now claim to be an alter ego of EOC. See Carey v. National Oil Corp., 592 F.2d 673, 676 (2d Cir.1979) ("We will not 'pierce the corporate veil’ in favor of those who created it.”).
. EOC does not address the issue whether there is a private right of action to enforce § 7(d). We assume for the purpose of this appeal, though we by no means hold, that one exists.
. The complaint also alleged a violation of the fraud provision of § 12 of the 1933 Act (15 U.S.C. § 771(2)). Appellant’s brief to this court does not advance this provision as a basis for our assertion of jurisdiction apart from § 10(b), or cite us to any case considering § 12 as a distinct basis for asserting jurisdiction over a foreign transaction. Accordingly, we do not address the question, beyond concluding that § 12 does not reach further than § 10(b). As we noted in Securities and Exch. Comm'n v. Texas Gulf Sulphur Co.,
.The 1934 Act states at § 30(b) that it "shall not apply to any person insofar as he transacts a business in securities without the jurisdiction of the United States, unless he transacts such business in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate to prevent the evasion of this chapter.” 15 U.S.C. § 78dd(b). But, the SEC has provided no such guidance for the antifraud provisions of the 1934 Act, leaving the courts to decide the application of § 10(b) with reference to the statute and its purpose and history.
.As formulated in Bersch, the effects test concerns sales to "Americans resident in the United States.”
. See Consolidated Gold Fields,
. EOC objects that the motion to dismiss was granted before discovery was permitted to ascertain the extent of U.S. holdings in and losses from the Fund. The extent of U.S. holdings is often relevant to the issue of whether some alleged frauds affected the United States, but we do not think this is such a case. All the alleged fraudulent representations were made by Arida (or others at Paribas) to Carr personally and perhaps also to O'Brien. The misrepresentations concerned the management and investment practices of the Fund which Carr claims induced him to buy an investment that was not in fact within his investment strategy. Thus, these were by no means the sort of public misrepresentations, such as concealment of a large liability or overstating earnings, that would implicate all U.S. holders of Fund shares, and they arc therefore not relevant to the fraud claims.
. Section 416 of the Restatement addresses "Jurisdiction to Regulate Activities Related to Securities.” Subsection (2) of 416 provides:
Whether the United States may exercise jurisdiction to prescribe with respect to transactions or conduct other than those addressed in Subsection (1) depends on whether such exercise of jurisdiction is reasonable in the light of § 403, in particular
(a)whether the transaction or conduct has, or can reasonably be expected to have, a substantial effect on a securities market in the United States for securities of the same issuer or on holdings in such securities by United States nationals or residents;
(b) whether representations arc made or negotiations are conducted in the United States;
(c) whether the party sought to be subjected to the jurisdiction of the United States is a United States national or resident, or the persons sought to be protected arc United States nationals or residents.
Section 403 includes a longer list of gencrally-applicable factors relevant to the question whether the exercise of prescriptive jurisdiction is reasonable.
. Alfadda v. Fenn,
. The seller was a partnership of two Dutchmen formed under Georgia law, but the court considered it a Dutch entity. Nederland,
. Section 403(2) of the Tentative Draft provided: "Whether the exercise of jurisdiction is unreasonable is judged by evaluating all the relevant factors, including:
(a) the extent to which the activity (i) takes place within the regulating state, or (ii) has substantial, direct, and foreseeable effect upon or in the regulating state;
(b) the links, such as nationality, residence, or economic activity, between the regulating state and the persons principally responsible for the activity to be regulated, or between that state and those whom the law or regulation is designed to protect;
(c) the character of the activity to be regulated, the importance of regulation to the regulating state, the extent to which other states regulate such activities, and the degree to which the desirability of such regulation is generally accepted;
(d) the existence of justified expectations that might be protected or hurt by the regulation in question;
(e) the importance of regulation to the international political, legal or economic system;
(f) the extent to which such regulation is consistent with the traditions of the international system;
(g) the extent to which another state may ■' have an interest in regulating the activity; (h) the likelihood of conflict with regulation by other states.”
Nederland,
. After adopting the Second .Circuit’s "conduct” test for the extraterritorial application of U.S. securities fraud laws, Judge Bork’s opinion in Zoelsch noted "the test we adopt here does provide jurisdiction whenever any individual is defrauded in this country, regardless of whether the offer originates somewhere else, for the actual consummation of securities fraud in the United States in and of itself would constitute domestic conduct that satisfies all the elements of liability.” Zoelsch,