Parkcentral Glob. HUB Ltd. v. Porsche Auto. Holdings SE - 763 F.3d 198 (2d Cir. 2014)

Rule:

The focus of the Securities Exchange Act of 1934 is not upon the place where the deception originated, but upon purchases and sales of securities in the United States. Section 10(b) (15 U.S.C.S. § 78j(b)) of the Act does not punish deceptive conduct, but only deceptive conduct "in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered." 15 U.S.C.S. § 78j(b). Those purchase-and-sale transactions are the objects of the statute's solicitude. Only transactions in securities listed on domestic exchanges, and domestic transactions in other securities, to which § 10(b) of the Act applies. With regard to securities not registered on domestic exchanges, the statute's exclusive focus is on domestic purchases and sales. Not deception alone, but deception with respect to certain purchases or sales is necessary for a violation of the statute.

Facts:

Plaintiffs international hedge funds employed securities-based swap agreements pegged to the price of Volkswagen AG ("VW") shares, which traded on European stock exchanges, to bet that VW stock would decline in value. The positions they took through their swap agreements were roughly economically equivalent to short positions in VW stock, in that they would gain to the extent VW stock declined in value and would lose to the extent it rose. Plaintiffs alleged that, in 2008, defendants made various fraudulent statements and took various manipulative actions to deny and conceal Porsche's intention to take over VW. The plaintiffs alleged that they relied on defendants' fraudulent denial of Porsche's intention to take over VW in making their swap agreements. When, in October 2008, Porsche made its true intentions public, the price of VW shares rose dramatically, causing the plaintiffs to suffer large losses. The plaintiffs brought the instant complaints in the United States District Court for the Southern District of New York against Porsche and two of its corporate officers alleging, among other things, that the defendants' fraudulent statements and manipulative actions violated U.S. securities laws. Following the Supreme Court's decision in Morrison v. National Australia Bank Ltd., 561 U.S. 247, 130 S. Ct. 2869, 177 L. Ed. 2d 535 (2010), the defendants moved to dismiss the complaint because the plaintiffs' swap agreements referenced securities trading on foreign exchanges. The district court granted the defendants' motion, concluding that the swaps were essentially transactions in securities on foreign exchanges.

Issue:

Under the circumstances, was it proper to dismiss the plaintiffs’ complaint against defendants? 

Answer:

Yes.

Conclusion:

The court affirmed the decision of the district court, although on the basis of different reasoning. According to the court, the imposition of liability under § 10(b) of the Securities Exchange Act of 1934 on the foreign defendants with no alleged involvement in plaintiffs' transactions, on the basis of the defendants' largely foreign conduct, for losses incurred by the plaintiffs in securities-based swap agreements based on the price movements of foreign securities would constitute an impermissibly extraterritorial extension of the statute. The court's ultimate conclusion depended in some part on the particular character of the unusual security at issue. While the Morrison case unmistakably made a domestic securities transaction (or transaction in a domestically listed security) necessary to a properly domestic invocation of § 10(b) of the Act, such a transaction was not alone sufficient to state a properly domestic claim under the statute.