The U.S. Court of Appeals for the Second Circuit held yesterday in the National Australia Bank case that it did not have subject matter jurisdiction over a so-called “foreign-cubed” case, where “a set of (1) foreign plaintiffs is suing (2) a foreign issuer in an American court for violations of American securities laws based on securities transactions in (3) foreign countries.” It affirmed the lower court’s ruling dismissing the case against Melbourne-based National Australia Bank.
The Court declined to state that it could never have subject matter jurisdiction in a foreign-cubed case. It stated that there was no need to jettison “our conduct and effects tests for foreign-cubed’ securities fraudactions and their replacement with the bright-line ban advocated by Appellees.”
The Court also stated that
declining jurisdiction over all “foreign-cubed” securities fraud actions would conflict with the goal of preventing the export of fraud from America. As the argument goes, the United States should not be seen as a safe haven for securities cheaters; those who operate from American soil should not be given greater protection from American securities laws because they carry a foreign passport or victimize foreign shareholders.
After analyzing several factors, the Court concluded that
This particular mix of factors – the fact that the fraudulent statements at issue emanated from NAB’s corporate headquarters in Australia, the complete lack of any effect on America or Americans, and the lengthy chain of causation between HomeSide’s actions and the statements that reached investors – add up to a determination that we lack subject matter jurisdiction.