The S.D.N.Y Cites Morrison in Dismissing Class Action Against UBS.

On September 13, 2011, Judge Sullivan of the Southern District of New York, relying on the U.S. Supreme Court case that established new criteria for the extra-territorial application of U.S. Securities laws, dismissed the majority of the plaintiffs in a class action suit against the Swiss bank UBS. 1

A group of foreign and domestic institutional investors had filed a federal securities class action suit against UBS and certain of its employees, officers and directors based on allegedly false and misleading statements relating to the Bank's investments in mortgage-backed securities and other purportedly high-risk assets. The Court granted UBS's motion to dismiss the claims brought by plaintiffs who purchased shares of UBS stock on foreign exchanges. 2

The plaintiffs advanced two main arguments. First, UBS shares were listed not only on a foreign exchange but on the NYSE as well; based on the statement in Morrison that § 10(b) applies to "transactions in securities listed on domestic exchanges and domestic transactions in other securities," transactions in these cross-listed shares would fall within the purview of Rule 10b-5. Second, claims asserted by investors who purchased their shares of UBS stock from within the United States survive Morrison regardless of the exchange on which the stock was purchased because these purchases constitute purchases "of any other security in the United States" and thus satisfy the Morrison "transactional" test.

The "listed on a US exchange" theory

The Court rejected plaintiff's arguments as overly technical and stated clearly that "foreign-cubed claims asserted against issuers whose securities are cross-listed on an American exchange are outside the scope of §10(b)." The Court reasoned that the purpose of the US Supreme Court's limitation on the extraterritorial reach of §10(b) was to avoid the "probability of incompatibility with the applicable laws of other countries": adopting the plaintiffs' "listing" theory would have the effect of broadening, rather than restricting, such extraterritorial reach. 3

The "transactional" test and foreign squared plaintiffs

Judge Sullivan reads Morrison to clearly reject the notion that the location of the buyer in the United States qualifies the purchase as a "domestic" transaction for the purposes of §10(b). It is the location of the exchange on which the purchase order is executed and neither the location of the buyer nor the place of injury suffered by the buyer (which would be equivalent to the "effects" test that Morrison overturned), that determines whether a transaction is domestic or foreign.

The claims of both the foreign-cubed and foreign-squared plaintiffs were dismissed.

See our prior Morrison article