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Clifford Chance

Clifford Chance


Second Circuit Holds That Morrison Precludes Securities Fraud Claims for Cross-listed Securities

9 May 2014

This week, the US Court of Appeals for the Second Circuit issued an important ruling restricting the courts' authority over securities fraud cases involving securities listed on foreign exchanges – even if those securities are cross-listed on exchanges in the United States.  See City of Pontiac Policeman’s and Firemen’s Retirement System v. UBS A.G.   The case followed the landmark US Supreme Court decision in Morrison v. National Australian Bank Ltd,  in which (upsetting years of lower court precedent), the Court held that the civil fraud provision of the Securities Exchange Act of 1934 (“Section 10(b)”) does not apply to claims by foreign investors against foreign issuers to recover losses from purchases on foreign securities exchanges (so-called “foreign-cubed” claims).  The Morrison Court applied a “presumption against extraterritoriality” to reach this result, requiring a clear indication of congressional intent to allow a federal statute to apply to conduct outside the United States.  Finding that Congress made no such clear statement with respect to Section 10(b), the Court held that Section 10(b) is only available for “transactions in securities listed on domestic exchanges and domestic transactions in other securities.”

In a case of first impression, the Second Circuit considered whether the Morrison bar on the extraterritorial application of Section 10(b) applied (1) to securities purchased on foreign exchanges that are cross-listed in the United States, and (2) to purchases made by US investors of foreign securities listed on foreign exchanges (so-called “foreign squared” transactions).

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