Morrison v. National Australia Bank Ltd.
Headline: Limits reach of U.S. securities-fraud law: Court rules it does not cover foreign purchases of securities listed only abroad, blocking foreign shareholders from suing under the federal law for overseas transactions.
Holding: The Court held that the federal securities-fraud law does not reach purchases of shares traded only on foreign exchanges and applies only to trades made in the United States or to securities listed on U.S. exchanges.
- Blocks foreign purchasers of foreign-listed shares from suing under the federal securities-fraud law.
- Leaves state law or other federal fraud statutes to cover misconduct that occurred in the United States.
- Allows SEC enforcement to proceed where domestic transactions or U.S.-listed securities are involved.
Summary
Background
A group of Australian investors bought ordinary shares in National Australia Bank, a bank whose shares were traded only on foreign exchanges. National had bought HomeSide, a Florida mortgage-servicing company, whose executives allegedly manipulated valuation models. After large write-downs and price drops, the Australians sued in New York under the federal securities-fraud rule announced in §10(b) and SEC Rule 10b-5. Lower courts dismissed, and the case reached the Court to decide whether that federal rule reaches these foreign purchases.
Reasoning
The Court applied the general rule that federal laws do not apply abroad unless Congress clearly indicated otherwise. Reading the statute’s language, history, and structure, the majority concluded that the law targets purchase-and-sale transactions in the United States or securities listed on U.S. exchanges. Because the shares at issue were listed only overseas and the purchases occurred in Australia, the Court held the federal rule did not apply to these claims. The Court explained that Rule 10b-5 is tied to §10(b) and therefore shares the same geographic limit.
Real world impact
The decision means foreign shareholders who bought foreign-listed shares cannot use §10(b) in U.S. courts to seek damages for those overseas purchases. It leaves open enforcement by the SEC or liability under state law or other federal criminal statutes when wrongful acts occurred in the United States. The ruling provides a clear bright-line rule about when the federal private fraud remedy applies.
Dissents or concurrances
Two Justices agreed with the result but differed about the test. One Justice joined the judgment but emphasized the presumption against extraterritoriality; another would have kept the older conduct-and-effects approach favored by many lower courts.
Opinions in this case:
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