Challenging the Long Arm of the US

Today sees the start of an appeal by the FSA against a decision made in 2009 relating to the extent to which it is required to co-operate with the Securities and Exchange Commission of the US.  In brief terms, the case involves a civil action brought in the US relating to allegations of unlawful trading in the stock of a public company.  Whilst the 2009 application for judicial review of the FSA’s decision to appoint inspectors and their subsequent issuing of a notice to produce documents was brought by two companies which were not defendants in the matter, their interests and rights were affected in a number of ways; principally the disclosure of confidential information to third parties and the wide nature of the request directed towards the companies’ accountant.

Whilst the FSA and the SEC have their own memorandum of understanding, this case highlights the powers and potential limits which regulators have to operate under when operating under memoranda of understanding on a wider basis.  Whilst the judge appreciated the need for international co-operation between regulators in order to ensure the correct and proper functioning of markets, there was a need to apply a test of proportionality and to be specific when making such requests.  In short, fishing expeditions should not be facilitated by regulators responding to requests for information from fellow regulators and that the documents should relate directly to any case made.

This comes against a backdrop of both increasing unease in defence lawyer circles about the extent to which “co-operation” is being used to bypass the normal checks and balances involved in delivering justice and also the growing use of extradition legislation in white collar crime cases.  The case should provide a useful marker to all those involved in responding to requests for information, including regulators looking at the extent to which they challenge incoming demands for information.

Law report on 2009 decision below:

http://www.lawreports.co.uk/WLRD/2009/QBD/AmroIntSA_v_FSA.html

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