While the majority of the provisions of the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act will not take effect for some time, a number of provisions designed to enhance the Security and Exchange Commission's ability to enforce anti-fraud securities laws take effect immediately.

One of these provisions is of particular note. It purports to expand the reach of SEC anti-fraud actions dramatically.

The Dodd-Frank Act vests the federal courts with subject matter jurisdiction over any action brought by the SEC or Department of Justice pursuant to one of the anti-fraud provisions of the federal securities laws (Section 10[b] of the Exchange Act and Rule 10b-5 there under, Section 17[a] of the Securities Act and Section 206 of the Investment Advisers Act), provided that the challenged conduct has some substantial relationship to or impact upon the U.S.

More specifically, the Dodd-Frank Act provides for anti-fraud extraterritorial jurisdiction in cases of conduct within the U.S. that constitutes significant steps in furtherance of the violation, even if the securities transaction occurs outside the U.S. and involves only foreign investors; as well as conduct occurring outside the U.S. that has a foreseeable substantial effect within the U.S.

This jurisdictional provision of the Dodd-Frank Act is designed to overturn the June 24 Supreme Court decision in Morrison v. National Australia Bank Ltd. Prior to the Morrison case, numerous federal courts, most notably those in the 2nd Circuit, had adopted a jurisdictional analysis similar to that enacted by the Dodd-Frank Act. As the Morrison Court explained, this analysis consisted of an "effects test" -- whether the wrongful conduct had a substantial effect in the U.S. or upon U.S. citizens -- and a "conduct test" -- whether the wrongful conduct occurred in the U.S.

The Supreme Court in the Morrison case wholly rejected this approach. The Supreme Court held that Section 10(b) was limited in scope to "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."

While the Morrison case dealt with securities law claims by private investors rather than the SEC, it is likely that its holding would be interpreted to limit SEC actions as well. The Dodd-Frank Act seeks to overrule the Morrison decision as it may pertain to SEC actions in favor of the 2nd Circuit analysis.

However, a number of issues remain. First, the Supreme Court in the Morrison case held that the 2nd Circuit had erred in addressing the reach of Section 10(b) in terms of subject matter jurisdiction. The Supreme Court found that the reach of Section 10(b) was a matter of substantive -- as opposed to jurisdictional -- law.

The Supreme Court recognized that the federal courts have subject matter jurisdiction to hear cases arising under Section 10(b). The pertinent question was rather whether Section 10(b) itself applied to such extraterritorial conduct.

Hence, it remains to be seen if the Dodd-Frank Act's grant of jurisdiction will be effective in overturning the Morrison case. Further, the Morrison decision dealt only with the application of Section 10(b) of the Exchange Act -- it in no way analyzed or pronounced upon the application of the other anti-fraud securities laws.

The Dodd-Frank Act's provision is all-encompassing. If a substantive analysis, as opposed to a jurisdictional analysis, is deemed appropriate for the other anti-fraud securities laws (as is likely), the Dodd-Frank Act's grant of jurisdiction could be deemed ineffectual there as well.

Finally -- and perhaps most interestingly -- the Dodd-Frank Act does not purport to overrule Morrison with respect to the issue actually litigated in Morrison -- the reach of Section 10(b) in private securities litigations. The Dodd-Frank Act purports to expand extraterritorial jurisdiction only in SEC actions. It does, however, call for a study on the expansion of jurisdiction in private securities actions as well.

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Mark A. Berube is a partner at Mishcon de Reya New York LLP who specializes in securities regulation, especially as it pertains to hedge funds.