SIFMA Files Amicus Brief Calling for Reversal of Short Sales Decision (with Lofchie Comment)

SIFMA filed an amicus curiae brief with the U.S. Supreme Court in Merrill Lynch, Pierce, Fenner & Smith, Inc., et al. v. Manning. The case presents the question of whether claims that are based on state law but that relate to violations of the Exchange Act must be heard in federal court. The Third Circuit decided that Section 27 of the Exchange Act did not confer exclusive federal jurisdiction over the claims (which relate to alleged improper short sales that, under federal law, would arguably violate Regulation SHO).

SIFMA asserts that the court of appeals' decision is "inconsistent with the plain text and policies underlying Section 27" and therefore, the Third Circuit should reverse that decision. SIFMA argues that the plain text of Section 27 "provides that federal courts 'shall have exclusive jurisdiction' over 'violations' of the Act and over all suits . . . brought to enforce any liability or duty created by [the Act] or the rules and regulations thereunder." SIFMA further contends that the court of appeals based its "contrary conclusion" on a previous decision, Pan American Petroleum Corp v. Superior Court of Delaware, 366 U.S. 656 (1961), which held that, "when a plaintiff pleads purely state-law claims, a federal exclusive-jurisdiction provision does not bring the case into federal court based on federal defenses."