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), 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 e-book, International 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, In 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.