Overview

On June 24, 2010, the United States Supreme Court issued its decision in Morrison v. National Australia Bank Ltd., a case that squarely raised an important and controversial question: can investors who bought or sold securities in a transaction that occurred outside the United States use the antifraud provisions of the Securities Exchange Act of 1934 (essentially, Rule 10b-5) as the basis for filing a lawsuit alleging fraud in connection with the purchase or sale of the securities?

The Court's answer was ‘no’. Rejecting the so-called ‘conduct’ and ‘effects’ tests, the Court held that regardless where the underlying conduct constituting the alleged fraud occurred or where its effects were felt, Rule 10b-5 claims may not be asserted where the plaintiffs' securities transactions occurred outside the US. Specifically, the Court held that the statute and rule only apply to transactions on a United States securities exchange or, where the transaction does not occur on an exchange, to a transaction that occurs in the United States.

The majority opinion in Morrison is significant for reaffirming the rule of statutory construction that where a statute does not clearly provide for extraterritorial application, it has none. This holding not only clarifies what had become a murky area of securities law, but may have far-reaching effects in other contexts, where lower courts have interpreted various US statutes as having extraterritorial effect. These decisions may now be revisited.

Click ‘View Briefing’ to read a full analysis of the decision