Earlier today, the US Supreme Court opened proceedings on the extraterritorial reach of Section 10(b) of the Securities Exchange Act. Morrison v More on National Australia Bank is questioning whether the act can be used for foreign-cubed securities class actions.
These class actions are foreign for three reasons: they are brought by foreign investors, who invested in a foreign issuer on a foreign exchange. If such cases can be brought to the US court then any company with US operations could be made into a target.
“If the Supreme Court finds jurisdiction, it would be dangerous,” said a lawyer close to the case. “This deters investment into the US and the use of US exchanges for fear of being connected to a lawsuit for what is done abroad.”
The decision will be based on the conducts and effects tests. These will ask whether the fraudulent activity was conducted in the US and if the effects were felt in the US. At the second circuit, it was found that the US activity in this particular case was too remote.
“There is a strong chance that the Supreme Court will affirm the second circuit decision – and I hope it does,” said the lawyer.