In an opinion that garnered little attention, the United States Court of Appeals for the Fourth Circuit has held that the Eastern District of Virginia is a proper venue for virtually all securities fraud prosecutions.

The Court, in U.S. v. Johnson, No. 06-5181, 2007 WL 4357393 (4th Cir. Dec. 14, 2007) held that the mere act of filing financial statements electronically with the US Securities and Exchange Commission (SEC) through the Electronic Data Gathering, Analysis and Retrieval (EDGAR) system would be sufficient to make the Eastern District of Virginia a proper venue to hear any case alleging securities fraud violations based upon those filings.

As most public companies are required to (and do) use the EDGAR system to electronically submit their SEC filings, this ruling has potentially broad implications. The Eastern District is colloquially known as the "Rocket Docket" as the median time from the filing of a complaint to final disposition is less than 10 months according to Federal Judicial Center statistics.

While the Johnson case was a criminal prosecution (Johnson was the CEO of PurchasePro.com, Inc.), a memo from Latham & Watkins suggests that civil plaintiffs could file a case in the district as well:

Going forward, plaintiffs can safely bring an action alleging securities fraud based on the filing of allegedly fraudulent financial statements in the Eastern District of Virginia, knowing that their case will not be dismissed for lack of venue. Civil and criminal defendants, on the other hand, will be limited to seeking a discretionary transfer to a more convenient forum and can no longer successfully attempt to get such an action or count dismissed because they could not have reasonably foreseen that the electronic transmission of financial statements to the SEC would make them subject to suit in Virginia.

Of course, securities class action plaintiffs would be wise to think twice before employing that strategy.

Of the 25 cases filed in the Eastern District of Virginia between 1996 and 2007 that have reached a final disposition (an additional three cases are still active), 13 were dismissed. OK, technically 14 were dismissed as the Cable & Wireless plc case was dismissed, but settled on appeal.

That dismissal ratio (greater than 50%) is markedly higher than the national average and has earned the Eastern District of Virginia a reputation as a potentially unfriendly jurisdiction to securities class action plaintiffs.

So, don't expect a deluge of securities class actions to be filed in the Eastern District anytime soon, but look for a potential upsurge in criminal securities fraud cases or civil actions brought by the SEC in that venue.