In light of a denied petition from the U.S. Supreme Court, the authors discuss the challenges in foreign issuer cases that can be addressed with economic analysis.
In Morrison v. National Australia Bank, the U.S. Supreme Court held that Section 10(b) of the Securities Exchange Act of 1934, and by extension, Rule 10b-5, only applies to “transactions in securities listed on domestic exchanges, and domestic transactions in other securities.” This greatly reduced the exposure foreign issuers faced from U.S. securities litigation. Subsequently, circuit courts have taken differing views on applying the second prong of Morrison: What type of domestic transactions are suitable for adjudication under the Exchange Act, and what limitations—if any—apply to this second prong?
On June 24, 2019, the Supreme Court declined to explicitly address this issue by denying the petition for certiorari in Stoyas v. Toshiba Corp., a U.S. securities class action related to an alleged accounting scandal. This has created a situation where even foreign companies that played no active role in fostering the trading of their securities in the United States may face class action suits under the Exchange Act that survive motions to dismiss.
In this article published by Law360, authors Iris Jiang, Shaama Pandya, and Brendan Rudolph provide a brief background on how securities issued by foreign companies can be transacted domestically, and then highlight some specific considerations and challenges raised in foreign issuer cases that can be addressed via economic analysis in securities litigation.
This article was originally published by Law360 in September 2019.
The views expressed herein do not necessarily represent the views of Cornerstone Research.