28 June 2010
Last week, on June 24, 2010, the Supreme Court held that the antifraud provisions of the securities laws do not protect purchasers of securities who purchase their securities on foreign exchanges, even when some fraudulent conduct occurs in the United States. The Court did not decide how those laws may protect investors who buy American Depositary Receipts (“ADRs”) in the same company listed on U.S. exchanges. Morrison v. National Australia Bank Ltd., 561 U.S. ___ (2010). Morrison held that courts should dismiss such cases because Section 10(b) of the Securities Exchange Act of 1934 (“Section 10(b)”) and Rule 10b-5 do not have extraterritorial effect. Id. at 16. The Court held that Section 10(b) extends only to cases: (1) involving securities listed on U.S. exchanges, or (2) where the security’s purchase or sale occurred in the United States. Id. at 18. These limits hold true even where the underlying fraudulent or deceptive activity occurred in the United States. Id. at 19.