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Edward Greene, Arpan Patel, Consequences of Morrison v NAB , securities litigation and beyond , Capital Markets Law Journal, Volume 11, Issue 2, April 2016, Pages 145–190, https://doi.org/10.1093/cmlj/kmw004
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Extract
1. Introduction
The Supreme Court’s landmark decision in Morrison v National Australia Bank (‘ Morrison’ ) holding that there is a ‘presumption against extraterritoriality’ with respect to congressional legislation has transformed the landscape of class action securities litigation. The Court eliminated the ‘conduct and effects tests’, which had been developed by Circuit rulings to determine if US securities laws are applicable in any given case involving transactions or conduct outside the USA. These tests directed courts to examine the ‘conduct’ and ‘effects’ of the alleged fraud to determine applicability of section 10(b) (the anti-fraud provision) of the Securities Exchange Act of 1934 (the ‘Exchange Act’ or ‘34 Act’) to such activity. The Court rejected The Second Circuit’s test in Morrison . It established the domestic ‘transaction test’, described by the majority as a ‘bright-line test’, which, absent explicit statutory language to the contrary, narrows the scope of inquiry to the location of the transaction, and only if the transaction is domestic does US law apply. 1 This ruling eliminated from the judicial system all ‘foreign-cubed’ or ‘f-cubed’ transactions—transactions where ‘foreign’ plaintiffs bring securities fraud claims against ‘foreign’ defendants for losses on transactions occurring on ‘foreign’ exchanges. ‘Perhaps no precedent has ever cut down so many claims of such great value so rapidly.’ 2
