New York Dominance in Securities Cases Threatened by North Texas

The US District Court for the Southern District of New York has dominated insider trading and other securities fraud matters for several reasons, such as the securities law expertise of its federal prosecutors and district court judges as well as a well-developed body of securities case law. But a major factor is that The New York Stock Exchange and the NASDAQ are headquartered in Manhattan.

This has allowed criminal fraud cases and Securities and Exchange Commission enforcement actions to proceed in the Southern District of New York, often with the only connection being that the securities at issue in the alleged fraud trades on one of these Manhattan-based exchanges.

However, the center of gravity for criminal and civil securities fraud enforcement, including insider trading, may be shifting to the Northern District of Texas. Three securities exchanges are slated to either open or establish headquarters in Dallas within the next year, opening the door to greater government enforcement of insider trading laws and other securities fraud cases outside of New York.

Venue is critical in these cases because of substantial differences between Texas and New York with respect to judicial precedent and expertise in the complex area of securities law, jury demographics, prosecutorial approaches to plea negotiations and case strategy, and ultimately case outcomes.

The SEC approved the Texas Stock Exchange to operate as a national securities exchange on Sept. 30. It is the first fully integrated national exchange approved by the SEC in years, and trading will begin in 2026.

The NYSE also launched “NYSE Texas,” a fully electronic equities exchange based in Dallas to operate alongside NYSE’s traditional exchange. And the NASDAQ announced it will soon open a new regional headquarters in Dallas.

Venue Requirements

Under the Sixth Amendment, a criminal defendant has the right to be tried in the “district wherein the crime shall have been committed.”When the alleged criminal acts implicate more than one location, the Constitution doesn’t command a single exclusive venue, only one that is proper “in any district in which such offense was begun, continued, or completed.”

Venue for a civil action under the securities laws lies “in the district wherein the defendant is found or is an inhabitant or transacts business,” or “in the district wherein any act or transaction constituting the violation occurred.” Though venue rarely impedes criminal or civil securities fraud enforcement actions, it does limit the government as to where it can bring such cases.

Earlier this year, the Southern District of New York ruled in the “Mango Markets” criminal securities fraud case that venue wasn’t proper and vacated the conviction. The court’s decision noted the defendant “didn’t make trades in New York, call or email anyone in New York, or go to New York in connection with his scheme. There is no allegation that the Mango Markets platform had ties to New York.”

Despite the decision, the U.S. Court of Appeals for the Second Circuit has long taken a broad approach to venue in securities fraud cases, making the Southern District of New York a natural magnet for these cases.

One of the clearest statements reflecting the Second Circuit’s permissive approach to venue is the 2021 insider trading case United States v. Chow. The appellate panel held that where “the defendant is charged with an offense involving the trading of securities on a stock exchange located in the [Southern District of New York],” such as the NASDAQ, “venue in that district is appropriate.”

In other words, the mere fact that the securities at issue were traded on an exchange “located in” the Southern District of New York was enough to confer venue there, even if the defendant never entered or engaged in any conduct in that district.

Fifth Circuit case law on venue in insider trading and other securities fraud cases is sparse, likely because, until now, federal prosecutors in Texas have had few grounds to bring criminal and civil securities fraud enforcement actions, absent specific conduct occurring in Texas.

This isn’t to say fraud enforcement is lacking in the Lone Star State—the SEC’s Fort Worth office brought several significant securities fraud enforcement actions in recent years. But assuming the Fifth Circuit doesn’t deviate from the Second Circuit’s longstanding approach to venue, the same cases that previously could be brought only in the Southern District of New York may soon be brought in the Northern District of Texas, involving securities traded on the TXSE, NYSE-Texas, or even the NASDAQ.

These districts differ in many critical ways, from legal precedent, to jury demographics, to prosecutorial approach, requiring defense counsel to adapt to local conditions in order to obtain the best outcome for clients.

Key Takeaways

The imminent establishment of up to three national securities exchanges in Dallas is a sign of the growing influence of North Texas on the national economy and portends increased government enforcement of securities fraud and insider trading in the Northern District of Texas.

Many factors are at play, not least of which are whether the Justice Department and the US Attorney in the Northern District of Texas will focus on this area of enforcement or whether it fits the administration’s enforcement priorities generally. But establishing large securities exchanges in Dallas makes it likely that more sophisticated securities fraud and insider trading enforcement activity will be shifting from New York to Texas.

The white-collar securities fraud bar should therefore prepare to defend cases in a jurisdiction with less established securities law precedents, a jury pool that may have different knowledge of and feelings toward Wall Street and large financial institutions, and a prosecutorial approach that has in the past been less focused on sophisticated securities law offenses.

These factors present significant opportunities for defense counsel to advocate for clients and present innovative defenses while presenting significant risks.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Elisha Kobre is a former federal prosecutor and a partner in Sheppard Mullin’s governmental practice in New York and Dallas.

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