The US is often accused of imperial overreach. But when it comes to going after American fraudsters defrauding foreigners, it may well suffer from "underreach" or not reaching at all. Depending on an appeals court decision, it may be legal for Americans to cheat foreign investors so long as the securities involved are traded overseas.
Here is a name you should know: Ross Mandell. Despite his self-styled moniker as the "bad boy of Wall Street", he's not in the same league as such luminaries as Ivan Boesky, Michael Milken, Bernard Madoff and Allen Stanford. But how a top court in the US decides about his criminal fraud could have worldwide repercussions.
In July, the former head of Sky Capital was jailed for 12 years after being found guilty of securities fraud, wire fraud and mail fraud. Prosecutors believed his firm bilked investors out of more than US$140 million. However, though he worked in the US, most of his victims were British and the securities were traded in London.
Now he is free on bail, pending an appeal. The powerful New York City Bar Association is supporting his case and many experts believe the US Court of Appeals for the Second Circuit is likely to uphold his appeal. This is because in 2010, the US Supreme Court ruled in a civil case that the US has no jurisdiction when it comes to foreign investors involved or cheated in the trading of foreign securities. The appeals court is likely to rule the 2010 judgment applies to criminal cases like Mandell's as well.
This is how it looks to a foreigner like me. US prosecutors and regulators have no compulsion going after foreign financial institutions and investors even if their transactions were merely routed through the US while their origin and destination were overseas and the clients all reside outside of the US. They claim jurisdiction as long as these institutions have an office address in the US. Given it is impossible for such institutions not to have a presence in the US, they effectively claim jurisdiction over most major financial players in the world. The latest targeted was Standard Chartered, which was fined US$340 million for transacting for Iran under US sanctions.
But if Americans want to cheat foreigners, hell, it's a free country, so long as no US securities are involved.