ParkCentral v. Porsche: The Second Circuit Signals New Lines of Defense to Extraterritorial Securities Fraud Claims

In ParkCentral Global Hub Ltd. v. Porsche Automobile Holdings SE (“ParkCentral”), the US Court of Appeals for the Second Circuit held that domestic securities transactions that did not involve the foreign defendant, whose alleged fraudulent actions occurred largely abroad and related to price movements in non-US securities, were beyond the territorial scope of Section 10(b) of the Securities Exchange Act of 1934. While the Second Circuit firmly declined to provide a “bright-line” rule as to when a claim is so foreign as to be beyond the scope of US securities laws, the holding is another in a series of Second Circuit decisions that should make it harder for claimants to sustain US securities claims against non-US issuers of non-US securities. However, it also shows that the extraterritorial scope of Section 10(b) is a fact-sensitive question that will require careful analysis in each case.

The Facts: Extraterritorial Actions Relating to Domestic Swap Trades

The ParkCentral plaintiffs included more than 30 international hedge funds that entered into “securities-based swap agreements” (the “swaps”) indexed to the price of Volkswagen AG (“VW”) shares as recorded on foreign exchanges. The plaintiffs alleged that Porsche Automobil Holding SE (“Porsche”), a VW shareholder, made fraudulent statements with respect to its intention to buy more VW shares, which in turn affected the value of the swaps. Porsche’s statements occurred primarily in Germany, though some statements were alleged to have been “accessible in the United States” and repeated by other defendants here. Although Porsche was not involved in any of the trades, the plaintiffs argued that because their swaps were “domestic transactions in other securities,” their claims were sufficiently territorial under Morrison v. National Australia Bank Ltd.

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