Morrison v. National Australia Bank Ltd.
The Court ruled that a key federal securities fraud law, Section 10(b), does not apply to securities bought and sold entirely on foreign exchanges, even when some of the fraudulent conduct behind the scheme took place inside the United States.
The decision sets a new bright-line rule -- the law only covers securities listed on U.S. exchanges or other securities actually bought or sold in the United States -- replacing decades of inconsistent lower-court tests and sharply narrowing who can sue in American courts over overseas stock fraud.
“When a statute gives no clear indication of an extraterritorial application, it has none.”
The Court's central rule for deciding when U.S. laws reach conduct outside the country.
How it got here: A federal trial court dismissed the case for lack of jurisdiction; the Second Circuit affirmed on similar grounds; the Supreme Court agreed to review the case.
The Case in Depth
What happened
Australian investors bought stock in National Australia Bank, Australia's largest bank, before it wrote down billions of dollars from a Florida-based mortgage-servicing subsidiary whose executives had allegedly manipulated financial models to hide losses. The investors sued the bank and various executives in U.S. federal court for securities fraud, even though the bank's ordinary shares traded only on foreign exchanges, not in the United States.
The question before the Court
Could Australian investors who bought an Australian bank's stock on foreign exchanges sue under U.S. securities fraud law, just because some of the deceptive conduct happened in Florida?
Why it matters
Foreign investors who buy stock on foreign exchanges can no longer sue in U.S. courts under this law, even if American executives orchestrated the fraud from the United States. Companies and their U.S.-based staff gain new insulation from private securities lawsuits tied to overseas stock, while enforcement by U.S. regulators like the SEC is unaffected.
What changes now
This is a final merits decision, not a remand for further fact-finding -- the Court affirmed dismissal of the investors' claims outright. Going forward, private lawsuits under this securities fraud provision are limited to securities traded on U.S. exchanges or purchases and sales that occur domestically. The ruling does not limit the SEC's own enforcement powers, and Congress remains free to write a broader rule into the statute if it chooses.
What this does not decide
The Court does not decide whether the SEC itself could bring an enforcement action over similar foreign conduct, noting that no issue about the Commission's own authority was before it. It also does not address whether other federal fraud statutes, like the mail or wire fraud laws, might still cover the domestic conduct alleged here.
Concurrences and dissents
Concurrence — Justice Breyer
Justice Breyer agreed with the outcome but reasoned more narrowly. He read the statute's own text as covering only two kinds of transactions -- securities on a national exchange or other securities' purchases and sales -- and concluded the presumption against extraterritoriality simply excludes purchases that occurred entirely in Australia among Australian investors. He noted that other laws, like federal mail or wire fraud statutes, might still reach the domestic conduct alleged, and joined the majority only insofar as it agreed with his reasoning.
Concurrence — Justice Stevens
Justice Stevens, joined by Justice Ginsburg, agreed the case should be dismissed but would have kept the decades-old approach used by the Second Circuit and most other courts, asking whether fraudulent conduct occurred in the U.S. or had substantial U.S. effects. He argued the majority misapplied the presumption against extraterritoriality by treating it almost like a rigid clear-statement rule, and warned the new bright-line test would wrongly bar American investors defrauded by conduct centered in the U.S. from suing.
How the Court got there
The legal reasoning, step by step
- The Court began with the presumption against extraterritoriality -- the rule that Congress is assumed to write laws that apply only inside the United States unless it clearly says otherwise. Because nothing in the securities fraud provision, Section 10(b), says it reaches conduct abroad, the Court treated it as a purely domestic law.
- The Court rejected the approach many lower courts, especially the Second Circuit, had used for decades: guessing what Congress would have wanted by weighing whether fraudulent 'conduct' happened in the U.S. or had 'effects' on U.S. investors. The Court found this approach untethered to the statute's text and unpredictable in practice.
- Instead of asking where the harmful conduct occurred, the Court asked what the statute's 'focus' is -- the specific thing Congress cared about regulating. It concluded that Section 10(b)'s focus is the purchase or sale of a security, not the location of the deception behind it.
- Applying that focus, the Court held the law reaches only securities listed on a U.S. stock exchange, or other securities actually bought or sold inside the United States -- regardless of where the underlying fraudulent scheme was hatched.
- Because the bank's shares traded only on foreign exchanges and all the purchases at issue happened outside the United States, the statute's focus was never triggered, even though some deceptive conduct occurred in Florida.
Doctrinal impact
Cases affected by this decision
Reaffirms Aramco (499 U. S. 244)
The Court relied on and applied this case's strong presumption that U.S. laws do not apply abroad unless clearly stated.
Distinguishes Pasquantino v. United States (544 U. S. 349)
The Court said this wire-fraud case does not control here because that law bans all fraud, not just fraud tied to a securities transaction.