In a major decision of interest to every foreign issuer of securities, the U.S. Supreme Court held yesterday in Morrison v. National Australia Bank Ltd. et al. that the anti-fraud provisions of the U.S. securities laws do not apply to foreign plaintiffs suing foreign defendants for misconduct in connection with securities traded on foreign exchanges—so-called "foreign-cubed" cases. Shearman & Sterling played a key role in this matter, filing a brief for France as amicus curiae.

This decision could have a significant impact on pending cases because it limits securities claims by investors who purchased their shares abroad on foreign exchanges. The Morrison decision limits the reach of Section 10 (b) of the Securities Exchange Act of 1934, which prohibits fraud in connection with the purchase or sale of any security. This decision creates a new "transactional" test for courts to use in determining whether the antifraud statute is applicable. Courts need only determine whether the security in question is listed on a domestic exchange or was purchased or sold in the U.S. If not, then Section 10(b) does not apply. This bars foreign plaintiffs from suing foreign issuers of securities for violations of US securities laws based upon transactions in foreign countries. And, it will likely force plaintiffs' lawyers to rethink their strategy in many securities class actions involving foreign defendants.

The Supreme Court's decision is a great victory for France, the UK, and Australia. Justice Scalia's opinion noted that France, the other foreign sovereigns, and many foreign companies had pointed out the "interference with foreign securities regulation" that foreign application of U.S. law would produce and "urge[d] the adoption of a clear test." Slip op. 21. Justice Scalia explained that "[t]he transactional test we have adopted...meets that requirement." Id.

The Shearman & Sterling team who worked on the amicus brief included partners Emmanuel Gaillard (Paris-International Arbitration) and Stephen Marzen (Washington, DC-Litigation), counsel Wendy Ackerman (Washington, DC-Litigation), and associates Keith Palfin (Washington, DC-Litigation) and Ghazaleh Meskoob (Paris-International Arbitration).