On 24 June 2010 the US Supreme Court gave a ruling in the Morrison v National Australia Bank which effectively prevents foreign investors from bringing claims in the US courts for alleged fraudulent conduct in foreign securities transactions, also known as “foreign cubed” actions.
The case involved a class action being brought against National Australia Bank (“NAB”) by certain foreign and domestic stockholders of NAB in the District Court for the Southern District of New York. The claim arose out of certain violations of US securities laws in respect of an alleged accounting fraud involving a US subsidiary of NAB. The US Supreme Court (affirming the decisions of the District Court and the US Court of Appeals for the Second Circuit) dismissed the claim brought by the foreign stockholders on the basis that the claim had been brought by foreign plaintiffs who had purchased foreign securities, in a foreign issuer, on a foreign exchange and therefore lacked subject matter jurisdiction.
The Supreme Court’s decision means that foreign investors can no longer bring private claims under US securities laws if the relevant securities are not listed on a US exchange or are purchased or sold outside the US. The long term implications of this decision are not yet clear. It has been suggested that foreign companies who issue US securities will benefit from this decision as it limits the scope of private actions to be brought under US securities laws. However, some commentators have suggested that this may lead to European Courts being as used as the forum for such litigation. This will not be without its difficulties since it may not be as easy to pick and choose a jurisdiction in which to bring a claim.