In the summer of 2010, as the securities class action bar was trying to come up with ways to get around the U.S. Supreme Court's ban on claims based on foreign-traded securities in Morrison v. National Australia Bank, some intrepid plaintiffs' lawyers posited a creative theory. Many foreign companies offered American Depository Receipts, which are traded on U.S. exchanges. Since ADRs are based on the foreign-traded shares, they argued, those shares are, by extension, "listed" on U.S. exchanges.
The theory was derided by defense lawyers, including George Conway of Wachtell, Lipton, Rosen & Katz, who won Morrison at the Supreme Court. Conway called the "listed" theory "N-U-T-S," and a succession of federal judges eventually agreed. In the 14 months since the Morrison ruling, judges have interpreted the court's stricture expansively, applying Morrison's ban on extraterritorial application of securities laws to cases involving not just securities fraud, but also claims under the 1933 Securities Act, claims involving unlisted credit default swaps, and even allegations of racketeering.
As judges tossed case after case against foreign defendants, one securities class action was left undecided. But it was a huge one: Plaintiffs asserted more than $100 billion (with a b) in losses, alleged that UBS deceived shareholders about its exposure to subprime mortgages and its allegedly illegal sheltering of U.S. tax evaders. Moreover, class counsel from Grant & Eisenhofer, Kessler Topaz Meltzer & Check, and Motley Rice had the strongest argument of any securities plaintiffs on the "listed" theory. UBS doesn't trade ADRs or American Depository Shares on U.S. exchanges. It trades common shares. About 12 percent of UBS shares are listed in the United States (according to Harvard law professor Allen Ferrell, in a declaration in the UBS litigation). Given that an investor could buy a share of UBS on the Swiss exchange in the morning and trade it on the NYSE in the afternoon, plaintiffs argued, all UBS stock was, in essence, listed on U.S. exchanges and thus immune from Morrison's bar.
Unfortunately for the class -- and for all investors hoping to salvage some scrap of hope from the Morrison wreckage -- federal judge Richard Sullivan of the Southern District of New York disagreed. In a long-awaited 10-page ruling Tuesday, Judge Sullivan found that shareholders could only proceed with claims based on shares actually listed in the United States. Foreign-listed shares are out. The ruling wipes out almost 90 percent of UBS's exposure.
UBS was represented by Robert Giuffra of Sullivan & Cromwell. "We are pleased with the court's decision dismissing all claims based on purchases of UBS's shares outside of the United States," he said in an email. Class counsel Jay Eisenhofer of Grant & Eisenhofer didn't respond to an email.
For the broader securities bar, said Conway of Wachtell, Judge Sullivan's UBS ruling means an end to plaintiffs' attempts to get around Morrison. "The 'listed securities' argument in this case was the last gasp," he told me in an email. "Now it's all over -- (plaintiffs) don't even bother to bring these cases anymore."
In fact, in a Sept. 9 brief in the Vivendi case, one of Morrison's biggest casualties, a coalition of some of the biggest securities class action firms in the business was left hoping for help from Congress, via the Securities and Exchange Commission's mandate in Dodd-Frank, or else from some wistfully imagined future Supreme Court. "The undersigned further submit that Morrison was wrongly decided and look forward to a day when a future Supreme Court corrects the error and reinstates the conduct and effects tests that had prevailed in (the Second) Circuit and elsewhere for decades."
(Reporting by Alison Frankel)
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