The Second Circuit Clarifies The Territorial Limits of U.S. Securities Laws

In 2010, the U.S. Supreme Court ruled in Morrison v. National Australia Bank Ltd. that Section 10(b) of the Securities Exchange Act of 1934 (the Exchange Act) does not apply extraterritorially. According to the Supreme Court, this bedrock anti-fraud provision of U.S. securities law applies only to "transactions listed on domestic exchanges and domestic transactions in other securities." Since Morrison was decided, plaintiffs' lawyers have been testing the limits of what constitutes a "domestic" transaction for purposes of a federal securities fraud claim. On May 6, 2014, the U.S. Court of Appeals for the Second Circuit defined some of those limits. In City of Pontiac Policemen's and Firemen's Retirement System v. UBS AG, the Second Circuit held that Morrison precludes claims arising out of foreign-issued securities purchased on foreign exchanges, even if the securities were cross-listed on a domestic exchange. The Second Circuit further held that mere placement of a buy order in the United States for the purchase of foreign securities on a foreign exchange is insufficient to establish a "domestic transaction" under the Exchange Act.