|  | | 2008 News and Press Releases | | |
HEADLINE NEWS:
Bringing 'Foreign-Cubed' Actions in American Courts
Douglas R. Jensen
Law.com. December 2, 2008
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EXCERPT: An American lawyer, seated in his midtown Manhattan office, receives a call from a prospective client located halfway around the world, in Sydney, Australia. The client purchased shares of an Australian corporation on the Australian stock exchange -- and lost a lot of money. He claims the offering materials were false and misleading, and wants to bring suit. But instead of bringing suit in Sydney, for strategic reasons he wants to commence an action in New York, under U.S. law. The client has a proposed justification for filing suit in New York. The Australian corporation had a wholly owned subsidiary located in the United States. That subsidiary engaged in improper accounting practices that led to grossly overstated revenues for the subsidiary's business. Once those overstated revenues were incorporated into the Australian corporation's financial reports, those reports were also materially misleading. Is that, the client asks, enough to get me into American court? The 2nd U.S. Circuit Court of Appeals, in a recent case of first impression, considered exactly that question: can a securities fraud complaint brought by foreign plaintiffs against foreign issuers based on foreign stock purchases -- a set of circumstances sometimes dubbed a "foreign-cubed securities case" -- be heard by a U.S. federal court? Morrison v. National Australia Bank Ltd., 07-0583-CV. The answer provided by the 2nd Circuit: under the right circumstances, yes. The three plaintiffs at issue in Morrison had bought "ordinary shares" (the equivalent of American common stock) of the National Australia Bank, an Australian corporation. While those shares traded on a number of foreign exchanges -- the Australian Securities Exchange, the London Stock Exchange, the Tokyo stock exchange and the New Zealand stock exchange -- they did not trade in the United States, and the Foreign Plaintiffs purchased their shares abroad. |
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