For the past several years, purchasers of securities on foreign exchanges have sought relief in U.S. courts under the antifraud provisions of the Securities Exchange Act. These so-called f-cubed litigations - claims by a foreign plaintiff, arising out of the purchase or sale of shares of a foreign corporation, executed on a foreign exchange - have been the subject of extensive commentary and jurisprudence, much of it focused on the circumstances under which f-cubed plaintiffs have the right to assert claims under the Exchange Act. The Supreme Court entered the fray in June of this year when it issued its highly anticipated opinion in Morrison v. National Australia Bank, 130 S. Ct. 2869 (2010).
The issue in Morrison was whether Section 10(b) of the Exchange Act provides a cause of action to f-cubed plaintiffs. Prior to Morrison, the 2nd Circuit - often considered a leader in securities law issues - applied two tests in answering that question: the "effects test" looked at "whether the wrongful conduct had a substantial effect in the United States or upon United States citizens," and the "conduct test" looked at "whether the wrongful conduct occurred in the United States." Justice Scalia, writing for the majority, labeled this "judicial-speculation-made-law," observed that these tests were both unpredictable and administratively unworkable, and accused the 2nd Circuit of "excis[ing] the presumption against extraterritoriality." The Court also rejected a test proposed by the SEC that focused on (i) whether the fraud involves significant conduct in the United States, and (ii) whether that conduct is material to the fraud's success. The Court found that the SEC's test lacked textual support and warned of its adverse consequences, including bolstering the view that the United States "has become the Shangri-La of class-action litigation for lawyers representing those allegedly cheated in foreign securities markets."