In the absence of appellate
guidance, District Courts continue to apply or expand the ruling of Morrison
v. National Australia Bank Ltd., No. 08-1191 (June 24, 2010) [enhanced version available to lexis.com subscribers / unenhanced version available from lexisONE Free Case Law], the first "foreign-cubed" securities action to appear
before the Supreme Court-in which (i) non-U.S. plaintiffs, (ii) sued a non-U.S.
issuer, (iii) based on securities transactions outside of the United States
(see the discussion of the extraterritorial implications of Morrison in our
Practice: Topics and Trends, as well as in our blog postings
(e.g., "Morrison and International Practice in Financial Services and
Products: Scorecard Nine Months In")). In the current decision,
re UBS Securities Litigation, No. 07 Civ. 11225 (RJS) (S.D.N.Y. Sept.
2011), the District Court continues the trend and arguably extends it.
UBS involves claims against the Swiss bank and global financial
institution alleging securitied fraud relating to UBS's allegedly fraudulent
statements concerning positions and losses in U.S. mortgage-related securities,
auction-rate securities, and compliance with U.S. tax laws. In renewed
briefing and motion practice ordered in the aftermath of the Supreme Court's
decision in Morrison, the District Court divided the claims into
"foreign cubed" and "foreign squared" claims.
On the "foreign cubed" claims, the
District Court dismissed the claims based on the holing in Morrison.
As many courts have explained, the Supreme Court rejected the "conduct" and
"effects" test in favor of a "transactional" test and held that the U.S.
fraud provision of the 1934 Securities and Exchange Act did not
extraterritorially reach "foreign cubed" claims - involving non-U.S.
plaintiffs, suing a non-U.S. issuer, based on securities transactions
outside of the United States. The only new argument here, which has
been rejected by other District Courts, is that the securities at issue were
also "cross-listed on the" New York Stock Exchange. That was not enough
to save the claims, said the Court.
The Court also dismissed the
"foreign squared" claims - that is, claims by "investors who purchased their
shares of UBS stock from within the United States" - i.e., claims from "a U.S.
investor who places a buy order in the United States for a stock listed on a
foreign exchange", where, plaintiffs argued, the investor "completes his or her
'purchase' in the United States when the buy order is placed". UBS
is not the first case to dismiss claims by U.S. investors. We have
questioned before whether that is what the Court intended in Morrison.
Appellate guidance is sure to be forthcoming.
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