MEMORANDUM AND ORDER
This matter is before us on Defendants Todd M. Ficeto, Hunter World Markets, Inc., and Hunter Advisors, LLC’s Motion to Dismiss First Amended Complaint (“Motion”), and Defendant Colin Heatherington’s Joinder in the Motion (“Joinder”). We have considered the papers filed in support of and in opposition to this Motion, and deem this matter appropriate for resolution without oral argument. L.R. 7-15. Accordingly, we rule as follows.
I. Background
For purposes of this Motion, we accept the allegations of the First Amended Com
A. Parties
On February 24, 2011, Plaintiff Securities and Exchange Commission (“Plaintiff’ or “SEC”) filed this securities action. Described in general terms, Plaintiff alleges that Defendants engaged in a fraudulent scheme to manipulate the prices of thinly traded U.S. microcap stocks on the domestic over-the-counter securities market, and to “pump” the portfolio values of offshore hedge funds. Plaintiff named six defendants in the action, all of whom allegedly participated in and benefitted from the alleged scheme.
Defendant Hunter World Markets, Inc. (“HWM”) was an SEC-registered broker-dealer located in Beverly Hills, California that allegedly conducted the transactions at issue. Defendant Hunter Advisors, LLC (“Hunter Advisors”) is a California LLC that acted as the investment adviser to Hunter Fund, Ltd.
Defendant Todd Ficeto (“Ficeto”), a California resident, is the current owner of HWM. Ficeto was a registered representative, trader, branch manager, and general securities principal of HWM. He was also the principal of Hunter Advisors and portfolio manager for Hunter Fund, Ltd.
Defendant Florian Homm (“Homm”), a resident of Spain during much of the relevant period, was the co-owner of HWM during the alleged fraud. He was also the principal investment adviser for the Absolute Funds, the hedge funds whose value was allegedly “pumped” by Defendants’ market manipulation scheme.
Defendant Colin Heatherington (“Heatherington”), a resident of Canada, was a trader for Absolute Capital Management Holdings Limited
B. The Alleged Market Manipulation Scheme
According to Plaintiff, Defendants engaged in a nefarious scheme to manipulate domestic securities markets and inflate the value of offshore hedge funds that they managed. Defendants selected U.S. microcap companies, capitalized the compa
Defendants allegedly engaged in matched orders, “marking the close” transactions, and wash trades, (FAC ¶¶ 30-35): manipulative trading techniques that are prohibited by the Securities Exchange Act of 1934 (“Exchange Act”) because they are “intended to mislead investors by artificially affecting market activity.” Santa Fe Indus., Inc. v. Green,
According to the SEC, Homm and Fieeto directed traders (including Heatherington) to place buy or sell orders for Issuers’ stock at specific times and in specific quantities in an effort to manipulate the price of those stocks. After receiving buy or sell orders in Issuers’ stock from the Absolute Funds, HWM would execute those orders in the over-the-counter marketplace either internally (by identifying a buyer and seller with brokerage accounts at HWM) or externally (by buying from or selling to clients of another brokerage house). (FAC ¶ 28). HWM would then report the trade to FINRA (an independent securities regulator), which would publicly disseminate the trading price and volume to the market. (Id.) Defendants’ manipulative trading tactics artificially inflated the value of the Issuers’ stock, and consequently, the value of the Absolute Funds, which held the Issuers’ stocks. Moreover, as a result of their actions Defendants allegedly made millions of dollars from stock sales, sales credits, commissions, and fees. (Id. ¶¶ 41-47).
II. Legal Standard for Motion to Dismiss Under Rule 12(b)(6)
To survive dismissal for failure to state a claim, a complaint must set forth “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell Atl. Corp. v. Twombly,
III. Pleading Requirements
Plaintiff does not dispute that its securities fraud allegations in the FAC are governed by Rule 9(b), which requires it to “state with particularity the circumstances constituting fraud or mistake.” This means that Plaintiff must allege the “who, what, when, where and how” supporting its fraud-based allegations made in the FAC. Vess v. Ciba-Geigy Corp. USA,
Defendants argue that the FAC fails to meet Rule 9(b)’s standards. They claim the FAC fails to distinguish each Defendant and allege with particularity the role each had with respect to each purported wrongful transaction. We disagree. To comply with Rule 9(b), Plaintiff need not provide every factual detail supporting its fraud claim — -indeed, the SEC is not required to prove its case in the pleadings. Rather, the FAC must not make “conclusory allegations of fraud.” Wenger v. Lumisys, Inc.,
Defendants also argue that the FAC’s Appendices — wherein Plaintiff lists each allegedly fraudulent transaction— provide insufficient information to fulfill 9(b)’s “who, what, when, where, and how” requirement. Defendants state that the FAC “identifies hundreds of trades that it alleges were fraudulent. The fact that there are a lot of trades does not make the burden on the SEC easier — to the contrary, the Rule 9(b) pleading burden applies as rigorously to a case with 100 al
IV. Investment Advisers Act Claim
Plaintiff alleges that Ficeto and Hunter Advisors, as investment advisers to the Hunter Fund, actively participated in the fraud alleged in this case and thus defrauded the Hunter Fund’s clients in violation of 15 U.S.C. § 80b-6(l)-(2). Defendants argue that Plaintiffs Investment Advisers Act claim is “fatally defective.” Although not clear, Defendants appear to argue that this claim is impossible because the Hunter Fund’s only clients were three of the Absolute Funds, and the de facto controller of the Absolute Funds— Homm — was actively involved in the alleged fraud. Because Homm cannot defraud himself, Ficeto and Hunter Advisors could not have violated the Advisers Act by defrauding a client who was aware of the fraud.
We disagree. Homm and the Absolute Funds are not identical entities — indeed investors in the Absolute Funds have brought actions against Homm based on the fraud that he allegedly committed. See, e.g., Absolute Activist Value Master Fund Ltd. v. Homm, No. 09 CV 008862,
V. Section 10(b) Claim
Plaintiff asserts that Defendants’ use of “marking the close” transactions, wash trades, and matched orders violated § 10(b) of the Exchange Act and Rule 10b-5 thereunder. Section 10(b) makes it unlawful “[t]o use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered ... any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.” 15 U.S.C. § 78j(b). Rule 10b-5 makes it “unlawful for any person ... (a) [t]o employ any device, scheme, or artifice to defraud, ... or (c) [t]o engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.” 17 C.F.R. § 240.10b-5. Defendants argue that by applying this section to transactions between foreign purchasers and sellers on the domestic over-the-counter securities market, the SEC impermissibly seeks to apply § 10(b) extraterritorially in contravention of Morrison v. National Australia Bank Ltd., — U.S. -,
Morrison involved the extraterritorial reach of § 10(b) of the Exchange Act. Morrison was a “foreign-cubed action”: one in which “(1) foreign plaintiffs [were] suing (2) a foreign issuer in an American court for violations of American securities laws based on securities transactions in (3) foreign countries.” Morrison,
Before Morrison, the courts of appeals (spearheaded by the Second Circuit) had adopted two tests to determine whether U.S. securities laws applied extraterritorially. The “effects test” examined “whether the wrongful conduct had a substantial effect in the United States or upon United States citizens”; the “conduct test” examined “whether the wrongful conduct occurred in the United States.” See id. at 2879 (quoting SEC v. Berger,
The Supreme Court rejected this line of cases because these tests had no textual basis. Id. at 2879. The Court returned to the basic principle that unless a contrary intent appears, legislation is meant to apply only within the territorial jurisdiction of the United States.' Id. at 2881. It adopted a “transactional” test, which focuses “not upon the place where deception originated, but upon purchases and sales of securities in the United States.” Id. at 2884. The Court held that § 10(b) applied only to “securities .listed on domestic exchanges, and domestic transactions in other securities.”
The instant action, of course, does not involve securities sold on foreign exchanges. The FAC alleges that Defendants engaged in manipulative techniques in purchasing and selling securities that were traded on the over-the-counter securities market: specifically, the OTCBB and Pink Sheets. Nevertheless, Defendants argue that § 10(b) does not apply to Plaintiffs claims under the test articulated in Morrison. They claim the FAC fails to meet Morrison’s first prong because the securities at issue were over-the-counter stocks and were not alleged to have been traded on a national exchange. They assert that the FAC also fails to meet Morrison’s second prong because Plaintiff has not alleged facts showing the trades at issue were “domestic transactions in other securities.” They argue that most of the alleged trades cannot be considered domestic transactions because they involved foreign buyers and foreign sellers. In particular, the wash trades and matched orders were largely transactions between accounts held by the same foreign hedge fund or various foreign hedge funds: “[T]he fact that the transaction between two foreign entities may have routed through the United States is not sufficient
To accept Defendants’ argument, we would have to conclude that the Court in Morrison divided all § 10(b) violations into two categories: (1) transactions in securities listed and traded on domestic exchanges, such as the NYSE; and (2) a strange group of bedfellows — transactions in securities listed and traded on foreign exchanges, as well as transactions in any other securities traded domestically or abroad that are not traded on any exchange, such as securities traded on the domestic over-the-counter market, securities traded on foreign over-the-counter markets, and securities in domestic or foreign companies purchased via private placements or other means. If Defendants are correct, § 10(b) automatically applies to any transaction that falls within the first category. But, for transactions that fall within the second category — even transactions on the domestic over-the-counter market — a plaintiff alleging a § 10(b) violation must fulfill an ambiguous and undefined requirement
We disagree and hold that Morrison does not bar the territorial application of § 10(b) to manipulative trading on the domestic over-the-counter market. We conclude that Defendants misread and misconceive the scope of the Court’s holding in Morrison.
A. Morrison Distinguished Domestic and Foreign Exchanges, not Domestic Exchanges and the Domestic Over-the-Counter Market
Defendants assert that because “there is no allegation that the domestic stocks in question were listed on a U.S. exchange, then under Morrison, § 10(b) only applies to the facts of this case if the Plaintiff can prove that the trades at issue were domestic transactions.” (Mot. at 8-9). This argument proceeds from a false premise. We do not agree that Morrison held that fraud on the domestic over-the-counter market does not fall within the prohibitions of § 10(b) except where the trades qualify independently as “domestic transactions.” To the contrary, transactions on the domestic over-the-counter market are as inherently imbued with our national interest as trades on national exchanges. Defendants are simply incorrect that the bright line drawn in Morrison was between domestic exchanges on the one hand, and foreign exchanges, foreign or domestic over-the-counter markets, and other securities transactions such as private placements from either foreign or domestic sources on the other hand. Taken as a whole, the Morrison opinion clearly demonstrates that the Court was focused on securities exchanges due to the facts presented in that case, and only intended to draw a bright line between foreign and domestic exchanges.
The Court framed the issue before it narrowly: “We decide whether § 10(b) of the Securities Exchange Act of 1934 provides a cause of action to foreign plaintiffs suing foreign and American defendants for misconduct in connection with securities
[T]he first sentence of the section ... declares that “transactions in securities as commonly conducted upon securities exchanges and over-the-counter markets are affected with a national public interests.” § 78(b). Nothing suggests that this national public interest pertains to transactions conducted upon foreign exchanges and markets.
Id. at 2882. The Court’s choice of this quote to highlight Congress’s stated purpose also demonstrates its knowledge of Congress’s concern with both national exchanges and the domestic over-the-counter market.
B. The Morrison Court Tethered Its Test to the Text of the Exchange Act
In interpreting § 10(b), the Court repeatedly stated that it was attempting to apply the Act in a way that effectuates the purpose of the statute, as expressed in the text of the Act itself. See Morrison,
The Court’s primary criticism of the Second Circuit’s “conduct” and “effects” tests was that these tests were not grounded in the text of the Act. See Morrison,
Unlike the foreign exchanges that the Court confronted in Morrison, we need not “divin[e] what Congress would have wanted had it thought of th[is] situation” because the text of the Exchange Act and the Act’s legislative history clearly support the application of § 10(b) to the transactions at issue in this case: transactions in securities on the domestic over-the-counter market. The Exchange Act’s stated purpose is “[t]o provide for the regulation of securities exchanges and of over-the-counter markets operating in interstate and foreign commerce and through the mails, to prevent inequitable and unfair practices on such exchanges and markets, and for other purposes.” Securities Exchange Act of 1934, 48 Stat. 881 (1934) (emphasis added). The Act’s Senate Report likewise noted the “unorganized ‘over-the-counter’ markets” that the bill addressed and that it was “vitally necessary” to provide the Commission with authority “to subject [over-the-counter markets] to regulation
The Act’s structure also demonstrates that § 10(b) applies to market manipulation of over-the-counter securities. In the Exchange Act, Congress specifically and explicitly designated some provisions to be applied only to securities traded on national exchanges, other provisions to be applied only to securities traded on the over-the-counter market, and still others to cover both national exchanges and the over-the-counter market.
Decades of case law demonstrates courts’ universal agreement that the application of § 10(b) to fraud in connection with over-the-counter securities is not “judicial-speculation made-law.” On a broad level, courts have recognized Congress’s
On a more granular level, courts from many jurisdictions have consistently cited specific textual provisions in holding that the Exchange Act applies to market manipulation on the over-the-counter market. See, e.g., Gupta v. Terra Nitrogen Corp.,
For us to accept Defendants’ argument, then, we would have to determine that Morrison silently reversed all of this case law and abandoned the clear text of the statute. We decline to do so. When the Supreme Court reverses a legal principle developed through decades of case law from multiple jurisdictions, it does so loud
Notwithstanding the decades-long history of courts’ equally applying § 10(b) to manipulation of securities traded on national exchanges and on the over-the-counter market, Defendants argue that Morrison for the first time distinguished between the two markets in applying § 10(b). Defendants ask us to assume that while loudly and clearly reversing forty years of case law to create a new test for applying § 10(b) depending on whether the securities are traded on national or foreign exchanges, the Supreme Court silently but implicitly reversed decades of case law to now require a different analytical framework to determine the applicability of § 10(b) to securities sold on a domestic over-the-counter market as opposed to those sold on a national exchange. We decline to make this assumption.
Applying § 10(b) to foreign Defendants who purchase or sell securities on the domestic over-the-counter market does not implicate the risks of “judicial-speculation-made-law” because there is a textual basis for such an application. In fact, so applying § 10(b) effectuates the purposes of the Act as expressed in the statute’s clear text, while grouping securities traded on the domestic over-the-counter market with securities purchased on foreign exchanges and foreign markets — as Defendants suggest we do — undermines the Act’s textually expressed purpose. We conclude that the Supreme Court did not purport to overturn the universally accepted principle that § 10(b) applies with equal force to market manipulation on national exchanges and the domestic over-the-counter market.
C. Other Aspects of Morrison Indicate that the Court Did Not Consider the Domestic Over-the-Counter Market to Be Affected by Its Holding
Morrison was not focused on the domestic over-the-counter market because the Court was not faced with fraud on that market. The Court’s discussion of the Exchange Act’s prologue further illustrates that it did not in any way consider transactions on the domestic over-the-counter market to be affected by its holding. The Court quoted the prologue to support the distinction it explicitly drew in that case: that while domestic exchanges and markets fall within the public interest and the boundaries of § 10(b), foreign exchanges do not. The Court stated:
The primacy of the domestic exchange is suggested by the very prologue of the Exchange Act which sets forth as its object “[t]o provide for the regulation of securities exchanges ... operating in interstate and foreign commerce and through the mails, to prevent inequitable and unfair practices on such exchanges ....” 48 Stat. 881. We know of no one who thought that the Act was intended to “regulat[e]” foreign securities exchanges — or indeed who even believed that under established principles of international law Congress had the power to do so. The Act’s registration require*1113 ments apply only to securities listed on national securities exchanges. 15 U.S.C. § 78Z(a).
Morrison,
This passage contains two important clues on whether Morrison applies to securities transactions on the domestic over-the-counter market. First, the prologue of the Act actually reads as follow (with emphasis added to indicate omitted portions): “To provide for the regulation of securities exchanges and of over-the-counter markets operating in interstate and foreign commerce and through the mails, to prevent inequitable and unfair practices on such exchanges and markets 48 Stat. 881. The only logical reason that the Court felt free to omit the portions of the prologue referring to the over-the-counter market is that it deemed those portions entirely irrelevant to its opinion because its holding did not implicate the domestic over-the-counter market. If, as Defendants contend, the Morrison Court actually intended to draw a bright line between domestic exchanges and the over-the-counter market, then the Court’s omission of the prologue’s reference to the over-the-counter market would be deceptive and misleading. We decline to assume that the Supreme Court intended to selectively and deceptively omit relevant portions of a statute’s language. Accordingly, we draw the only logical conclusion possible under the circumstances: the Court considered the domestic over-the-counter market to be unaffected by its holding.
Second, the Court’s statement that “[t]he Act’s registration requirements apply only to securities listed on national securities exchanges,” supported by a citation to 15 U.S.C. § 781, is only factually correct if compared with the lack of registration requirements for foreign securities exchanges. Put another way, it is true that the Act’s registration requirements apply to securities listed on national exchanges but not to securities listed on foreign exchanges. As a standalone statement of the Act’s requirements, though, the Court’s statement is unequivocally inaccurate. The Act contains registration requirements that apply to a variety of domestic securities. Most importantly, § 781 also requires that securities sold on the over-the-counter market be registered with the SEC, at least where the Issuer’s assets and number of shareholders exceed a certain amount. See 15 U.S.C. § 78Z(g); Oren A. Amram, When Worlds Collide: Transfer Pricing Tax Strategies and the Securities Laws, 8 U.C. Davis Bus. L.J. 324, 325 n. 1 (2008). Again, we can draw two possible conclusions from the Supreme Court’s statement: We can assume that the Court made a clearly inaccurate statement of the law and misstated the clear text of a basic provision of the Exchange Act that was materially relevant to its holding. Or, we can conclude that the Court made a characterization of the statute that is entirely accurate when used to distinguish registration requirements for foreign and domestic exchanges, and that the Court did so because it considered the other types of domestic securities subject to registration requirements to be irrelevant to and outside the scope of its decision. We again decline to assume that the Supreme Court intentionally or otherwise selectively omitted relevant portions of a statute’s text and instead draw the conclusion that the Court considered non-exchange domestic securities markets to be unaffected by its holding.
The majority’s brief discussion of its second prong (“domestic transactions in other securities”), the prong under which Defendants would have us analyze the transactions at issue in this case, further supports the proposition that domestic over-the-counter securities are unaffected by Mor
Simply put, the application § 10(b) to the domestic over-the-counter market was not before the Court, and we decline to draw a line between exchanges and the over-the-counter market that was not drawn by the Court itself.
D. Conflict of Laws Concerns in Morrison
It also bears mention that a significant concern motivating the Court’s conclusion in Morrison was that applying U.S. securities laws to foreign exchanges would result in a serious conflict with foreign laws. Indeed, the avoidance of conflicts with foreign laws is perhaps the factor most commonly discussed by lower courts applying Morrison. See, e.g., In re Vivendi Universal, S.A Sec. Litig.,
The probability of incompatibility with the applicable laws of other countries is so obvious that if Congress intended such foreign application it would have addressed the subject of conflicts with foreign laws and procedures. Like the United States, foreign countries regulate their domestic securities exchanges and securities transactions occurring within their territorial jurisdiction. And the regulation of other countries often differs from ours as to what constitutes fraud, what disclosures must be made, what damages are recoverable, what discovery is available in litigation, what individual actions may be joined in a single suit, what attorney’s fees are recoverable, and many other matters. [Numerous countries and foreign industry groups have filed amicus briefs in this case.] They all complain of the interference with foreign securities regulation that application of § 10(b) abroad would produce.
Id. at 2885-86 (citation and quotation marks omitted). Morrison thus acknowledged the difficulties that could arise if § 10(b) were applied to securities on foreign exchanges that are separately governed by foreign regulatory bodies.
The Court’s extensive discussion of its conflict of laws concerns demonstrates that it was wary of the wholesale exportation of U.S. securities laws to other countries’ exchanges. The Court’s concern was not the continued application of § 10(b) to the domestic over-the-counter market, which was already regulated by U.S. securities laws and most certainly not regulated by foreign countries’ laws. As such, applying § 10(b) with the same force to national exchange and the domestic over-the-counter market does not implicate potential conflicts with foreign laws that concerned the Court in Morrison.
E. Posf-Morrison Case Law Does Not Support Defendants’ Position
Morrison simply cannot credibly be read to bar the application of § 10(b) to the transactions at issue in this case. Lower courts’ post-Morrison cases do not compel a contrary conclusion. No post-Morrison case has presented precisely this set of facts: the application of § 10(b) to a case brought by an American plaintiff against foreign and American Defendants, claiming that the Defendants defrauded the U.S. over-the-counter securities market using market manipulation techniques. Courts have dismissed § 10(b) claims involving securities that were traded on foreign exchanges but also listed (but not traded) on domestic exchanges. See, e.g., Royal Bank of Scotland,
Several other post -Morrison cases have involved domestic plaintiffs who purchased securities on foreign exchanges but filed § 10(b) claims due to misrepresentations allegedly made to induce the domestic plaintiffs to buy foreign stocks. In these cases, courts have consistently held that Morrison bars the plaintiffs’ § 10(b) claim. See, e.g., Plumbers’ Union Local No. 12
Still other cases have involved “private placements” — privately negotiated sales of securities between parties that do not occur on any open securities market. For example, in Absolute Activist Value Master Fund Ltd. v. Homm, No. 09 CV 08862(GBD),
VI. Conclusion
Morrison was concerned with the extraterritorial application of § 10(b). See Morrison,
Defendants’ Motion is DENIED in its entirety. Defendants SHALL answer Plaintiffs FAC within twenty-one (21) days hereof.
IT IS SO ORDERED.
Notes
. The FAC is unclear on which corporate Defendants and other relevant entities are currently defunct or are still in existence. Accordingly, we have defined these entities in accordance with Plaintiff’s descriptions in the FAC — for example that Hunter Advisors is a California LLC, but that Hunter World Markets was a Beverly Hills-based broker dealer. (See FAC ¶¶ 3-5, 12-21).
. Hunter Fund, Ltd. ("Hunter Fund”) is not a party to this action. It was a British Virgin Islands hedge fund whose sole three investors were three of the Absolute Capital Management Holdings Funds ("ACMH Funds” or "Absolute Funds”). The ACMH Funds, also non-parties, were eight hedge funds that were all domiciled in the Cayman Islands and managed by Absolute Capital Management Holdings Limited. The Absolute Funds had brokerage accounts at HWM, and U.S. individuals and entities invested millions of dollars in the Funds.
. Absolute Capital Management Holdings Limited (“ACMH”), another nonparty, is a London-based hedge fund management company and SEC-registered investment adviser whose primary function was to manage the Absolute Funds. Homm was ACMH’s co-founder and principal investment adviser.
. The OTCBB is an interdealer electronic quotation system that displays real-time quotes, last-sale prices, and volume information for many domestic over-the-counter equity securities that are not listed on the NASDAQ stock exchange or a national securities exchange. Broker-dealers can use the OTCBB to look up prices or enter quotes for over-the-counter securities. OTC Bulletin Board (OTCBB), U.S. Securities & Exchange Commission, http://www.sec.gov/answers/ otcbb.htm (last updated June 25, 2007). The Pink Sheets also provide electronic quotations, trading, messaging, and information platforms for the over-the-counter securities market. Brokers can use the Pink Sheets to publish bid and ask prices. OTC Markets Group Inc., U.S. Securities & Exchange Commission, http://www.sec.gov/answers/pink.htm (last updated Feb. 3, 2011).
. The Court's holding was phrased in various iterations throughout the opinion. For example: "whether the purchase or sale is made in the United States, or involves a security listed on a domestic exchange,” id. at 2886, and "Section 10(b) reaches the use of a manipulative or deceptive device or contrivance only in connection with the purchase or sale of a security listed on an American stock exchange, and the purchase or sale of any other security in the United States,” id. at 2888.
. In Morrison, the Court did not define what kind of transactions would fall into this second category, because in that case "all aspects of the purchases ... occurred outside the united States.” Id. at 2888. The Court only stated that "[w]ith regard to securities not registered on domestic exchanges, the exclusive focus [is] on domestic purchases and sales." Id. at 2885.
. The Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub.L. No. 111-203, 124 Stat. 1376 (2010), changed some of these designations. The amendments are irrelevant in this case, though, as Dodd-Frank did not contain any retroactive provisions. Thus, we discuss the statutory structure based on the pre-Dodd-Frank version of the Exchange Act. In any event, Dodd-Frank did not categorically exclude the over-the-counter market from regulation under the Exchange Act. To the contrary, Dodd-Frank tightened regulation over some over-the-counter securities: perhaps most significantly, the over-the-counter derivatives markets. See Mark Jickling & Kathleen Ann Ruane, Cong. Research Serv., R41398, The Dodd-Frank Wall Street Reform and Consumer Protection Act: Title VII, Derivatives (2010) (describing new requirements that Dodd-Frank imposes on the over-the-counter derivatives market).
. Courts have repeatedly acknowledged and invoked this statutory structure when discussing which sections of the Act apply to fraud on a particular type of market. See, e.g., Dorfman v. First Boston Corp.,
. Numerous courts have applied § 10(b) to various types of fraudulent activities involving securities sold on the over-the-counter market. See, e.g., SEC v. First Jersey Sec., Inc.,
. The Court provided little elaboration on this second prong, as it found that not a single aspect of the purchases at issue occurred in the United States.
. Several cases have since discussed this concern in similarly deciding that Morrison barred particular claims. See, e.g., In re Royal Bank of Scotland Group PLC Sec. Litig.,
. These cases seem particularly correct given that notwithstanding Morrisons broad pronouncement of its holding, the securities at issue in Morrison had ADRs that were traded on the NYSE. Morrison,
. Defendants suggest that Absolute Activist already dismissed “almost the same sets of allegations” under Morrison. (Mot. 9). We disagree. Although Absolute Activist involved the same hedge funds and several of the same Defendants in this case, the allegations here are very different. Absolute Activist focused on investments made via private placements, of stocks never released to the general market, while the instant case focuses on the manipulative trading on the domestic over-the-counter securities market of stocks traded publicly in the United States.