A couple of items from around the web.
(1) Professor John Coffee has a New York Law Journal column (Sept. 17 - subscrip. req'd) on the impact of the National Australia Bank (NAB) decision on SEC and private actions. The column discusses a factual scenario in which a U.S.-based stock promoter defrauds U.S. investors in a transaction that is consummated overseas. Post-NAB, the U.S. investors cannot bring an action under Section 10(b)/Rule 10b-5, but "they could sue in the United States based on a cause of action under foreign law."
(2) The American Lawyer has an article on an unusual order (to say the least) issued in the Gildan Activewear securities class action. Although lead counsel was appointed two years ago and the parties have entered into a preliminary settlement, the court instructs the two plaintiffs firms to "make every effort" to assign at least one minority and one woman to the case. The order states that this is warranted because the class has thousands of members "arguably from diverse backgrounds" and it is "therefore important to all concerned" that lead counsel also be diverse.
No one should pack their bags for Shangri-La quite yet. The defendants in the UBS case have received a huge boost from another S.D.N.Y. court regarding the scope of the National Australia Bank (NAB) decision.
At issue is whether a foreign issuer listed on both a foreign exchange and a U.S. exchange can be subject to suit in the U.S. by investors who purchased their shares on the foreign exchange. In In re Alstom SA Sec. Litig., 03 Civ. 6595 (VM) (S.D.N.Y. Sept. 14, 2010), the court found that NAB's use of the phrase "listed on domestic exchanges" did not, based on the existence of a dual listing (U.S. and France), create a U.S. cause of action for investors who purchased their Alstom shares on the French exchange.
The court also declined to exercise supplemental jurisdiction over the claims of the foreign purchasers and apply French law to adjudicate them. Among other things, the court noted that "Plaintiffs have not given any indication that the French claims were unavailable when they began this action and the Court is not now persuaded they should be allowed to press the reset button here, particularly where, by Plaintiffs' own reckoning, France's ten-year statute of limitations allows the claims to be brought in France."
Holding: Claims of plaintiffs who purchased securities on foreign exchanges dismissed.
Quote of note: "That the transactions themselves must occur on a domestic exchange to trigger application of Sec. 10(b) reflects the most natural and elementary reading of [the NAB decision]."
The scope of the National Australia Bank (NAB) decision on the extraterritorial application of Section 10(b) continues to be tested in the lower courts. A case to keep an eye on is In re UBS AG Sec. Litig. (S.D.N.Y.), where the issue is what the Supreme Court meant when it stated that Section 10(b) applies to "the purchase of a security listed on an American stock exchange, and the purchase or sale of any other security in the United States." To wit, does it mean that if a foreign issuer is listed on both a foreign exchange and a U.S. exchange it can be subject to suit in the U.S. by investors who purchased their shares on the foreign exchange?
The AmLaw Litigation Daily has a post (subscrip. req'd) on the case, which includes a link to UBS's recent motion to dismiss. Not surprisingly, UBS argues that reading "listed" to authorize U.S. securities class actions based on the purchases of securities on a foreign exchange would "fly in the face" of the Supreme Court's conclusion that Section 10(b) does not regulate foreign exchanges. Stay tuned.
Quote of note (UBS brief): "Over 850 foreign issuers, including NAB and UBS, list and register their shares on both a foreign exchange and a U.S. exchange. It defies logic to believe that Justice Scalia, without explanation and contrary to the rest of his majority opinion, included the word 'listed' to expand Section 10(b) in a way that will discourage foreign issuers from listing their shares on U.S. exchanges and make the United States the 'Shangri-La' for worldwide securities class actions."
Do you have some availability on Tuesday, Sept. 21 in New York? It is not too late to sign up for PLI's Securities Litigation & Enforcement Institute 2010. All of the details can be found here.
Lyle Roberts of Dewey & LeBoeuf (the author of The 10b-5 Daily) is co-chairing the program. The outstanding faculty will cover a wide range of topics, including financial crisis litigation, the latest corporate governance litigation issues, case management and settlement techniques, SEC and DOJ trends, and practical advice on handling government investigations.
Hope to see you there.
There was an interesting appellate decision last month in one of the few securities class actions to be tried to a verdict.
In 2005, Thane International won a bench trail in a case concerning the company's 2002 acquisition of Reliant Interactive Media. A class of Reliant investors brought Securities Act claims seeking recission of the merger. In particular, they alleged that Thane's pre-merger prospectus contained misrepresentations because it implied that Thane shares would list on the Nasdaq National Market. The company actually commenced trading on the OTCBB.
The Ninth Circuit subsequently found that the district court had erred in holding that the prospectus did not contain material misrepresentations, but remanded so that the district court could address the issue of loss causation. On remand, the district court granted judgment for Thane because the company's stock price did not decline below the merger price until nineteen days after trading began on the OTCBB. The plaintiffs appealed again.
In Miller v. Thane Int'l, Inc., 2010 WL 3081488 (9th Cir. Aug. 9, 2010), the court found that "stock price evidence may be used in loss causation assessment" even if the market for the stock was inefficient. In the instant case, Thane's expert demonstrated that that the company's "stock price could and did impound [i.e., absorb] information about Thane during this nineteen-day period, including the listing on the OTCBB." Accordingly, the court declined to find that the district court erred in holding that the misrepresentations did not cause any loss.
Holding: Judgment affirmed.
Quote of note: "[T]he materiality inquiry concerns whether a 'reasonable investor' would consider a particular misstatement important. It is hypothetical and objective. By contrast, the loss causation inquiry assesses whether a particular misstatement actually resulted in loss. It is historical and context-dependent."
Thanks to John Letteri for sending in the decision.