On March 1, 2012, the United States Court of Appeals for the Second Circuit held that a foreign plaintiff may assert a fraud claim under the federal securities laws based on its purchases of securities issued by U.S. companies that are not listed on a U.S. securities exchange only when irrevocable liability to purchase or sell the securities was incurred or title to the securities transferred in the United States. In the decision, Absolute Activist Master Fund Ltd. v. Ficeto, the Second Circuit was required to interpret the second prong of the U.S. Supreme Court's decision in Morrison v. National Australia Bank restricting the extraterritorial application of Section 10(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and related Rule 10b-5 in transactions that do not occur on a U.S. securities exchange. While the Second Circuit held in Absolute Activist that the plaintiffs had failed to state a claim under section 10(b), it granted plaintiffs leave to amend their complaint because it was filed prior to the U.S. Supreme Court's decision in Morrison. However, the decision in Absolute Activist provides useful insight into the elements of a claim for securities fraud under Morrison when the securities sold are not listed on a U.S. securities exchange.
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