The Southern District of New York dismissed class action securities claims, alleging violations under Section10(b) of the Exchange Act and Sections 11 and 12 of the Securities Act, brought by U.S. investors who purchased shares of a foreign issuer on a foreign exchange.

The court relied on the U.S. Supreme Court decision in Morrison v. National Australian Bank Ltd, 130 S.Ct. 2869, 2888 (2010), which rejected the “notion that the Exchange Act reaches conduct in this country affecting exchanges or transactions abroad.” The Supreme Court adopted a transactional test under which the purchase or sale must have been of a security listed on an American stock exchange or a security in the United States.

The plaintiffs argued that Morrison did not bar their claims because ADR shares of the foreign issuer were listed on an American stock exchange. The court rejected this argument as inconsistent with Morrison, which focused on where the securities transactions in issue were executed.

The plaintiffs also argued they had engaged in domestic transactions because they were U.S. residents whose decisions to purchase shares were made in the United States upon the advice of U.S.-based asset managers. The court rejected this argument as inconsistent with the transactional focus of Morrison.

Finally, the plaintiffs argued that the Securities Act claims are not barred because Morrison only involved Exchange Act claims. This too was rejected as inconsistent with Morrison in which the Supreme Court “clearly expressed that the territorial reach of the Exchange Act and Securities Act involves the ‘same focus on domestic transactions.’” (citing Morrison, 130 S.Ct. at 2885).

In re Royal Bank of Scotland Group PLC Sec. Litig., No. 09 Civ. 300 (DAB) (S.D.N.Y. Jan 1, 2011).

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