By Louis M. Solomon
We have previously posted on the Magistrate
Judge's rejection of Fabrice Tourre's discovery requests concerning Germany
in SEC v. Goldman Sachs & Co. and Fabrice Tourre, 10 Civ. 3229
(S.D.N.Y.) [(Motion for judgment on the pleadings available 88-101026-047B )]. In a short
order, the District Court has now affirmed the Magistrate Judge's Report
At the same time, the District
Court, on June 10, 2011, issued a decision
on Tourre's motion to dismiss the securities claims filed against him for
failure to state a claim. Of interest to international practice is the
bulk of the District Court's decision applying Morrison v. National
Australia Bank Ltd., 130 S.Ct. 2869 (2010), which held that Section 10(b)
of the Securities Exchange Act of 1934 did not provide a private cause of
action in "foreign-cubed" cases-cases where foreign plaintiffs sue foreign
defendants for misconduct in connection with securities traded on foreign
exchanges (hence "foreign cubed"). Rejecting prior jurisprudence focusing
on where "conduct" and "effects" occurred or would be felt to determine the
reach of Rule 10b-5, Morrison the Supreme Court held that Section 10(b)
reaches frauds only where "the purchase or sale is made in the United States,
or involves a security listed on a domestic exchange".
In Tourre, the District Court
rejected most of the SEC's claims under Morrison. Tourre notes
that one of the factors that "weighed heavily" in the Supreme Court's decision
was the "probability of incompatibility with the applicable laws of other
countries". But as we have pointed out (here),
that is an issue that cuts in multiple directions - incompatibility may come
from underenforcement as well as overenforcement. In any event, in the
year since Morrison was decided, we have not seen much discussion or any
evidence of incompatibility.
The District Court in Tourre
also provides an extensive analysis of what it believes Morrison meant
by a purchase or sale of a security occurring in the U.S. Said the Court,
following the Southern District decision in Plumbers' Union Local No. 12
Pension Fund v. Swiss Reinsurance Co., 753 F. Supp. 2d 166 (S.D.N.Y. 2010),
the District Court holds that the purchase (or sale) does not occur until the
buyer has "incurred an irrevocable liability to take and pay for the
stock". The Court rejected the importance of evidence of significant
activity and conduct in the U.S. short of the irrevocable liability,
stating: "The shortcoming of all of this U.S.-based conduct is precisely
that - it is just conduct".
The District Court also applies Morrison's
standard to claims under the Securities Act of 1933, specifically Section
17(a). See also In re Royal Bank of Scotland Grp. PLC Securities
Litig., No. 09 Civ. 300 (S.D.N.Y. Jan. 2011)(discussed here).
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