|
As the first lower court rulings citing the Supreme Court's decision in Morrison et al. v. National Australia Bank, Ltd. start to roll in, the worst fears expressed by Justice John Paul Stevens in his concurring opinion are coming true - U.S. investors who buy stock on foreign stock exchanges can no longer sue for fraud under U.S. federal securities laws. In a single swoop, the Supreme Court wiped out four decades of investor protections. Justice Antonin Scalia's majority opinion used a legal outlier - a foreign plaintiff, suing a foreign issuer in connection with losses on stock purchased on a foreign exchange - to remake the securities law from the bench. Rather than restricting themselves to the issue before them, the majority went well beyond the "f-cubed" parameters, delineating a bright line test that appears to have created a giant loophole for foreign companies to dupe American investors and evade accountability. Lower courts are interpreting Morrison as saying U.S. federal securities laws only protect investors for stock purchased on a U.S. securities exchange. The judge hearing a securities fraud class action against Credit Suisse Group, for example, dismissed plaintiffs' claims because their investments were purchased on the Swiss stock exchange. In granting defendants' motion for judgment on the pleadings, U.S. District Court Judge Victor Marrero of the Southern District of New York noted that the Morrison decision had set a bright line test for the application of § 10 (b) in transnational securities purchases and sales. Morrison, he said, "does not leave open any of the back doors, loopholes or wiggle room to accommodate the distinctions Plaintiffs urge to overcome the decisive force of that ruling on their § 10 (b) claims here." Similarly, in a ruling on lead plaintiff motions for the case against Toyota, U.S. District Court Judge Dale S. Fischer concluded that a "fair reading" of the Morrison decision would exclude the claims of domestic purchasers of Toyota stock on foreign exchanges. These lower-court rulings are clearly the first of many that may further bar the courthouse door to investors, including public pension funds, who have relied on federal securities laws to recoup money lost due to fraud. By restricting claims to those involving securities acquired on U.S. exchanges, the Supreme Court has effectively eliminated the recourse of U.S. investors who purchased securities on a foreign exchange. Congress had the opportunity to negate the effects of Morrison with the recent passage of the Dodd-Frank financial reform act, but lawmakers stopped short of providing investors with the right of private action in cases against international defendants. Instead, the law directs the Securities and Exchange Commission to commission an 18-month study of the effects of § 10 (b) extraterritoriality on investors. We believe that Congress should not wait for the SEC to complete this study; Congress must act now to close the loophole and protect American investors. Both U.S. and foreign companies should have to play by the same rules when there is a major impact on U.S. investors. We urge all institutional investors, including our clients and friends, to join us in this important endeavor.
Joseph J. Tabacco, Jr.
Jeffrey C. Block |
