Domestic listing insufficient to apply U.S. Securities Law to foreign-issued securities

The 2nd Circuit recently decided the first impression issue of whether application of U.S. securities law was barred on foreign exchanges cross-listed on a domestic exchange. In City of Pontiac et al., v. UBS AG et al., plaintiffs brought a class action against a foreign financial institution alleging violations of §§10(b) and 20(a) of the Exchange Act and §§11, 12(a)(2), and 15 of the Securities Act. The plaintiffs claimed that UBS overvalued securities, concealed the scope and losses of portfolios, and made materially misleading statements concerning a tax-fraud investigation. The plaintiffs’ main argument for liability under U.S. securities laws was the fact that the securities issued were cross-listed on the NYSE. The 2nd Circuit upheld the dismissal by the U.S. District Court. The court held that a private cause of action under §10(b) arose under (1) transactions in securities listed in domestic exchanges, and (2) domestic transactions of other securities. The court relied on Morrison v. National Australia Bank Ltd., stating that the focus of the Exchange Act was “the location of the securities transaction and not the location of an exchange where the security may be dually listed.” The Act will not apply to foreign issued shares simply because they are listed on a domestic exchange. The court also held that a buy-order made in the United States does not affect application of the U.S. securities laws if the actual transaction took place in a foreign location.

Finally, the court dismissed the Securities Act claims, finding the statements to be either puffery, bad business judgments, or too immaterial to be relied upon by the investors.