The Territorial Reach of U.S. Securities Laws After Morrison v. National Australia Bank: Recent Lower Court Decisions Applying Morrison Limit Overseas Reach of the U.S. Securities Laws

Sullivan & Cromwell LLP - September 29, 2011

In June 2010, in Morrison v. National Australia Bank, the U.S. Supreme Court held that U.S. securities antifraud laws do not reach transactions by non-U.S. investors in securities of non-U.S. companies effected on non-U.S. exchanges, even if the investors claim that their losses arose from conduct in the United States.  In its decision, which overturned the so-called “conduct” and “effects” tests previously followed by U.S. courts, the Supreme Court adopted a “transactional” test for determining the territorial scope of the U.S. securities laws.  In rejecting the efforts of the plaintiffs’ bar to end-run Morrison, lower federal courts have applied the Supreme Court’s reasoning to avoid the extraterritorial application of the U.S. securities laws.  Most notably, in separate securities fraud actions against UBS AG (“UBS”) and Porsche Automobil Holding SE (“Porsche”), federal courts recently dismissed claims (i) based on purchases of securities outside the United States where the non-U.S. issuer had dually listed the class of relevant securities on both U.S. and non-U.S. exchanges, (ii) by U.S. purchasers of a non-U.S. issuer’s securities on a non-U.S. exchange, and (iii) based on securities-based swap agreements referencing shares traded on non-U.S. exchanges.  (S&C partners Bob Giuffra and Suhana Han represented both UBS and Porsche.)  Following these and other post-Morrison decisions, non-U.S. issuers should take some comfort that they will not expose themselves to “worldwide” securities class actions simply by participating in U.S. capital markets.