Second Circuit — Foreign-Issued Securities: City of Pontiac v. UBS AG et al.

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U.S. Court of Appeals for the Second Circuit

Foreign-Issued Securities

Extraterritorial Application of the Securities Exchange Act

City of Pontiac v. UBS AG et al.
12-4355-cv
Judges Cabranes, Hall and Chin

Background: At issue is whether the bar on extraterritorial application of the United States securities laws precludes claims arising out of foreign-issued securities purchased on foreign exchanges, but cross-listed on a domestic exchange. The plaintiffs brought a putative class action against the defendants alleging violation of the Securities Exchange Act in connection with the purchase of ordinary shares. The shares were listed on foreign exchanges as well as the New York Stock Exchange.

Ruling: The Second Circuit held that Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010), precludes claims by purchasers of shares of a foreign issuer on a foreign exchange, even if those shares were cross-listed on a United States exchange. Further, claims brought under the Securities Act based on disclosures made in connection with a registered rights offering were properly dismissed because they were immaterial or mere puffery. Finally, the Securities Exchange Act claims regarding positions in, and the valuation of, mortgage-related assets were properly dismissed for failure to adequately plead a material misrepresentation or scienter.

Gregory M. Castaldo of Kessler Topaz Meltzer & Check for the plaintiffs-appellants; Robert J. Giuffra Jr. of Sullivan & Cromwell and Barry R. Ostrager of Simpson Thacher & Bartlett for the defendants-appellants