Morrison v. National Australia Bank Ltd.
Citation and Court
561 U.S. 247 (2010), Supreme Court of the United States
Facts
Foreign investors purchased shares of National Australia Bank (NAB) on the Australian Stock Exchange. NAB’s U.S. subsidiary HomeSide International had inflated its mortgage-servicing values, causing NAB to write down billions. The foreign shareholders sued NAB in U.S. federal court under § 10(b) of the Securities Exchange Act of 1934.
Issue
Whether § 10(b) of the Securities Exchange Act applies to purchases of foreign securities on foreign exchanges by foreign investors — a so-called “foreign-cubed” securities fraud case.
Holding
Section 10(b) does not apply extraterritorially; it governs only transactions in securities listed on domestic exchanges and domestic transactions in other securities (the “transactional test”).
Rule / Doctrine
U.S. securities fraud law (§ 10(b)) applies only where the purchase or sale of a security occurs on a U.S. exchange or in the United States. Conduct-and-effects tests used by lower courts to extend the statute’s reach are displaced by this transactional test derived from the presumption against extraterritoriality.
Significance
Morrison reshaped securities litigation by rejecting the broader conduct-and-effects test and adopting a clear transactional test for extraterritorial application. It dramatically curtailed foreign-cubed litigation in U.S. courts and prompted Congress to add § 929P(b) to the Dodd-Frank Act for SEC enforcement actions.