Supreme Court Grants Cert in Foreign Cubed Action

The U.S. Supreme Court accepted certiorari today in Morrison v. National Australia Bank Ltd., 547 F.3d 167 (2d Cir. 2008), an important case dealing with the extraterritorial effect of federal securities law.  The Second Circuit affirmed the district court's holding that it should not exercise jursidiction over a class action where (1) foreign plaintiffs are suing (2) a foreign issuer in an American court for violations of American securities laws based on securities transactions in (3) foreign countries (so-called foreign cubed action).  The U.S. Solicitor General had filed a petition advising the Court not to grant certiorari.

According to the petitioners, the issues presented are:

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 this 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.