On June 20, 2011, following seven years of litigation, Infineon Technologies AG reached a $6.2 million settlement with investors in a securities fraud class action based on the company’s admission that it participated in an illegal price-fixing conspiracy. According to a settlement motion, “substantial changes in the law regarding the claims of foreign investors” resulted in the parties reaching a deal, referring to the pivotal Supreme Court ruling in Morrison v. National Australia Bank that barred “foreign-cubed” securities actions.
Previously, Judge James Ware of the US District Court for the Northern District of California dismissed Infineon shareholders who had purchased ordinary shares outside of the United States. In re: Infineon Technologies AG Securities Litigation, 5:04-cv-04156 (N.D. Cal. Mar. 17, 2011). The certified class had included investors who had acquired securities through Infineon’s $5.5 billion initial public offering and those who purchased stock on both the New York Stock Exchange (NYSE) and Frankfurt Stock Exchange.
Plaintiffs claimed that Infineon, one of the world’s largest manufacturers of Dynamic Random Access Memory (DRAM), a type of computer memory, and certain of its officers and directors, had violated Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5. Allegations included misrepresentations about the impact of artificially inflated DRAM prices on Infineon’s corporate value and stock valuation. In 2004, Infineon pleaded guilty to price fixing, and agreed to pay $160 million in fines, while four executives pleaded guilty to antitrust violations.
Infineon shareholders argued that Section 10(b) applied because the German-based company had listed and traded American Depository Receipts (ADRs) on the NYSE, while listing and registering ordinary shares on the same exchange. According to plaintiffs, these listings were sufficient to trigger Section 10(b) fraud “in the connection with the purchase or sale of a security listed on an American stock exchange,” despite more than 90 percent of Infineon shares during the class period trading on a foreign exchange.
Citing Morrison, the Infineon court expressly rejected plaintiffs’ argument, finding Section 10(b) did not apply to the fraud alleged because the securities transactions did not take place in the United States. The court found plaintiffs’ reliance on share listing and registration on the NYSE “misplaced,” noting that the defendant in Morrison had also listed ADRs on the NYSE, with ordinary shares trading exclusively on foreign securities exchanges.
The Infineon ruling also followed recent decisions out of the Southern District of New York interpreting Morrison broadly, including In re Royal Bank of Scotland Group PLC Securities Litigation, 09 Civ. 300 (S.D.N.Y. Jan. 11, 2011), where the court dismissed Section 10(b) and Rule 10b-5 claims brought by a putative class of US plaintiffs against Royal Bank of Scotland (RBS) and several underwriters and individuals because the claims related to securities transactions that occurred in the United Kingdom and on other markets outside the United States. The Infineon court also cited In re Alstom SA Securities Litigation, 2010 WL 3718863 (S.D.N.Y. Sept. 14. 2010), for the proposition that a securities transaction must occur on a domestic exchange to trigger Section 10(b).
In the wake of the Infineon settlement, it appears increasingly likely that plaintiffs, post- Morrison, cannot chiefly rely on the domestic listing and registration of ADRs or shares to trigger application of US securities laws to shares purchased on foreign exchanges. Rather, plaintiffs must demonstrate that transactions in such securities actually occurred within the bounds of the United States.