“Foreign-Cubed” Class Actions and Extraterritorial Application of U.S. Securities Laws
I. Whether the antifraud provisions of the United States securities laws extend to transnational frauds where: (a) the foreign-based parent company conducted substantial business in the United States, its American Depository Receipts were traded on the New York Stock Exchange and its financial statements were filed with the Securities Exchange Commission ("SEC"); and (b) the claims arose from a massive accounting fraud perpetrated by American citizens at the parent company's Florida-based subsidiary and were merely reported from overseas in the parent company's financial statements.
II. Whether the Supreme Court, which has never addressed the issue of whether subject matter jurisdiction may extend to claims involving transnational securities fraud, should set forth a policy to resolve the three-way conflict among the circuits (i.e., District of Columbia Circuit versus the Second, Fifth and Seventh Circuits versus the Third, Eighth and Ninth Circuits).
III. Whether the Second Circuit should have adopted the SEC's proposed standard for determining the proper exercise of subject matter jurisdiction in transnational securities fraud cases, as set forth in the SEC's amicus brief submitted at the request of the Second Circuit, and whether the Second Circuit should have adopted the SEC's finding that subject matter jurisdiction exists here due to the "material and substantial conduct in furtherance of” the securities fraud that occurred in the United States.
NCLC urged the U.S. Supreme Court to reject a proposed expansion of U.S. securities laws, which would open U.S. courts to “foreign-cubed” class actions – lawsuits brought by foreign plaintiffs against foreign defendants, based on conduct that occurred in a foreign country. In this case, an Australian company, with virtually all of its shareholders outside the United States, faces protracted class action litigation in U.S. courts for alleged misstatements made to its non-U.S. investors in connection with securities transactions conducted in the Australian market. In its brief, NCLC argued that the Australian company’s decision to invest in a U.S. subsidiary does not justify expanding the private right of action under Section 10(b) of the securities laws to permit ‘foreign-cubed’ class actions. NCLC warned that opening U.S. courts to foreign litigation will discourage foreign companies from investing in American capital markets.
1. The Second Circuit erred in considering §10(b)’s extraterritorial reach to raise a question of subject-matter jurisdiction, thus allowing dismissal under Rule 12(b)(1).
2. Section 10(b) does not provide a cause of action to foreign plaintiffs suing foreign and American defendants for misconduct in connection with securities traded on foreign exchanges.
Amicus brief filed 2/26/10. Moot court held 3/26/10. Oral argument held 3/29/10. Decided 6/24/10.