Supreme Court’s Morrison Decision Puts an End to Litigating Foreign-Cubed Cases in U.S. Courts


On June 24, 2010, the Supreme Court issued its decision in Morrison v. National Australia Bank, which clarified the extraterritorial reach of U.S. securities laws. At issue in Morrison was the application of the principal antifraud provisions of the federal securities laws Section 10(b) of the Securities and Exchange Act of 1934 and associated Rule 10b-5—to lawsuits brought (1) by foreign investors, (2) against foreign issuers of securities (companies incorporated in a foreign country), and (3) based on transactions on foreign securities exchanges — a so-called “foreign-cubed” transaction. Before the Supreme Court’s decision in Morrison, U.S. courts exercised jurisdiction over foreign-cubed cases where the court determined that there was “sufficient United States involvement” in the wrongful conduct or its effects, but it was uncertain what combination of circumstances would be deemed adequate to apply U.S. law. The Supreme Court’s decision puts an end to foreign-cubed cases by construing Section 10(b) not to apply extraterritorially. The Court held that Section 10(b) and Rule 10b-5 do not apply to purchases of securities that are not listed on a U.S. exchange and are not purchased in the United States.

National Australia Bank (NAB), one of Australia’s largest banks, is headquartered in Melbourne, Australia. NAB’s approximately 1.5 billion “ordinary shares” (the equivalent of American common stock) trade on the Australian Securities Exchange, the London Stock Exchange and the Tokyo Stock Exchange. In February 1998, NAB acquired HomeSide Lending, a mortgage service provider in Florida. In 2001, NAB disclosed that HomeSide’s accounting practices had led to an overstatement of the value of its mortgage servicing rights (MSRs). NAB subsequently took two write-downs of these MSRs, totaling $2.1 billion. Following the announcements, the value of NAB’s ordinary shares dropped by 5% and 13%, respectively.

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