Clifford Chance

F-Cubed Gets an F Grade from US Supreme Court

30 June 2010

Multinationals can breathe much easier. The Supreme Court has decided that US securities laws only apply to claims arising from the purchase of securities within the United States. Investors, whether American or foreign, who buy securities abroad may have claims under the laws of the place where they made their purchases, but they cannot now run to the United States in order to take advantage of US laws or the favourable features of the United States' court system. Foreign cubed litigation has been squarely defeated.

Morrison v National Australia Bank is a landmark case that reduces significantly the US litigation risk faced by multinational corporations. 561 U.S. __ (June 24, 2010) No. 08-1191, Slip Op. at 24. The Supreme Court established a bright line rule that Section 10(b) of the Securities Exchange Act of 1934 (and, by implication, the Securities Act of 1933) only applies to claims based on the purchase of securities in the United States, including securities bought or sold on American stock exchanges. The Supreme Court rejected the more flexible conduct and effects test previously applied by the lower courts, deciding that securities legislation has no extra-territorial effect. Even if claims arise from fraudulent conduct within the United States, no proceedings can be brought in US courts unless the securities were bought in the United States.

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