The US Supreme Court has confirmed that a foreign purchaser of securities issued by a foreign company and listed only on a foreign exchange could not sue under US laws.
On 24 June 2010, the Supreme Court published its opinion in relation to Morrison v. National Australia Bank Ltd. The opinion contains a new “transactional test” to determine whether Section 10(b) of the Securities Exchange Act 1934 allows foreign claimants to bring private U.S. damages actions for securities fraud.
The Court held that Section 10(b) applies only to “transactions in securities listed on domestic exchanges” and to “domestic transactions in other securities.” Thus, foreign purchasers of securities listed only on foreign exchanges cannot sue for violations of Section 10(b) in the U.S., even if domestic fraudulent conduct gave rise to their claim.
The Morrison decision now makes clear that Section 10(b) of the Securities Exchange Act and its private damages remedy reaches only purchases or sales of securities listed on U.S. exchanges and U.S.-based transactions in other securities. As a result of the new Morrison test, the potential liability of foreign companies under the U.S. securities laws, and the corresponding costs of litigation, will decrease.
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