Second Circuit Rejects “Listing” and “Foreign-Squared” Claims Under Morrison v. National Australia Bank: U.S. Securities Laws Do Not Apply to Transactions Abroad Merely Because the Security at Issue Is Dually Listed on a U.S. Exchange or Because the “Buy Order” Was Placed in the U.S.; Second Circuit Also Holds That an Issuer’s Aspirational Statements of Corporate Culture Are Inactionable “Puffery” That Cannot Trigger Liability Under the U.S. Securities Laws

Sullivan & Cromwell LLP - May 6, 2014

In Morrison v. National Australia Bank, the U.S. Supreme Court opined that U.S. securities laws apply only “in connection with the purchase or sale of a security listed on an American stock exchange, and the purchase or sale of any other security in the United States.”  Seizing on that language, plaintiffs sought to establish exceptions to Morrison’s clear holding that U.S. securities laws do not apply to non-U.S. transactions by contending that U.S. securities laws apply to (i) transactions in any security dually listed on both a U.S. and non-U.S. exchange, even when the transaction itself occurred on the non-U.S. exchange; and (ii) non-U.S. securities transactions that were initiated by an investor in the United States.
On May 6, 2014, in City of Pontiac v. UBS AG, the U.S. Court of Appeals for the Second Circuit—whose securities laws rulings are widely followed by courts across the United State—rejected both of these theories as a matter of first impression.  (S&C partners Bob Giuffra, Matthew Schwartz, and Justin DeCamp represented UBS AG.)  Under the Second Circuit’s ruling, issuers will be able to dually list their securities on a U.S. exchange without fear of exposing themselves to liability under U.S. securities laws for transactions occurring on non-U.S. exchanges.  Issuers also will not be subject to liability under U.S. securities laws for orders initiated in the United States but transacted on a non-U.S. exchange.

The Second Circuit’s opinion also addressed plaintiffs’ claims that UBS’s statements about its “compliance, reputation, and integrity” were materially misleading, because UBS was not complying with certain U.S. tax laws.  In rejecting this argument, the Second Circuit confirmed that these types of aspirational corporate statements are “inactionable ‘puffery,’” because they are “too general to cause a reasonable investor to rely upon them.”  This holding should help resolve a conflict that has emerged among certain federal trial courts in New York about whether such statements are actionable.