State-Law Securities Issue Heads to Supreme Court

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By Rob Tricchinelli

Nov. 27 — The U.S. Supreme Court will hear arguments Dec. 1 that could clarify how state courts may handle litigation dealing with alleged violations of federal securities laws, highlighting the week ahead.

A coalition of Escala Group Inc. shareholders sued several investment banks, claiming they manipulated the price of Escala securities by naked short-selling. Their claims fell under New Jersey state law, and the banks have tried to move the case into federal court by arguing that the allegations fall under Regulation SHO of the 1934 Securities Exchange Act.

In November 2014, the U.S. Court of Appeals for the Third Circuit held that there was no federal-question jurisdiction, because a state law cause of action can still be valid if a federal issue is “necessarily raised.”

The Supreme Court agreed to take the case in June.

SEC Legislation

On the Hill, the House Financial Services Capital Markets Subcommittee will hold a Dec. 2 hearing on a bill that would change how the Securities and Exchange Commission can bring enforcement actions in its administrative forum.

The bill, sponsored by subcommittee Chairman Scott Garrett (R-N.J.), would allow administrative defendants to change venue if the SEC's complaint seeks a monetary penalty or a cease and desist order. It also would heighten the agency's burden of proof for in-house cases.

The subcommittee will also weigh several capital formation bills, but a full list of bills and witnesses hasn't been released.

To contact the reporter on this story: Rob Tricchinelli in Washington at

To contact the editor responsible for this story: Seth Stern at

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