City of Pontiac Policemen’s and Firemen’s Retirement System et al. v. UBS AG et al.

The Second Circuit upheld the Southern District of New York’s decision on all counts in this UBS securities case, affirming the district court’s dismissal under Morrison v. National Australia Bank Ltd.

Retained by Sullivan & Cromwell

Defense counsel retained Cornerstone Research in a putative class action in which the plaintiffs alleged that Swiss-based bank UBS was liable to shareholders for credit-crisis-related losses. The issues included whether investors could bring claims for shares purchased on a foreign exchange, if those shares were dually listed on a domestic exchange, or if the purchase followed a “buy order” placed in the United States.

“The fact that a U.S. entity places a buy order in the United States for the purchase of foreign securities on a foreign exchange is insufficient to incur irrevocable liability.”

The U.S. Court of Appeals for the Second Circuit held that Morrison precludes claims arising out of purchases of foreign-issued securities on a foreign exchange, even if the securities are cross-listed on a domestic U.S. exchange. The three-judge panel sided clearly with the defendants, stating in the matter of the domestic investor: “The fact that a U.S. entity places a buy order in the United States for the purchase of foreign securities on a foreign exchange is insufficient to incur irrevocable liability.”

The Second Circuit also rejected allegations that UBS’s general statements about its asset concentrations and risk diversification, its mark-to-market valuation of mortgage-related assets, or its reputation could be construed as material information, or be the basis for “reckless conduct.” The court opined, “To be ‘material’…the alleged misstatement must be sufficiently specific for an investor to reasonably rely on that statement as a guarantee of some concrete fact or outcome.” In addition, the judges refused to accept the plaintiffs’ argument that UBS should have recognized the vulnerability and anticipated write-downs of its mortgage-related assets.

Cornerstone Research supported an expert in analyzing the trading activity in UBS shares, with findings regarding the activity of foreign investors and on non-U.S. exchanges.

In its decision, the Second Circuit affirmed the ruling of the Southern District of New York on all counts.