Academic journal article Fordham Journal of Corporate & Financial Law

Morrison V. National Australia Bank: Life after Dodd-Frank

Academic journal article Fordham Journal of Corporate & Financial Law

Morrison V. National Australia Bank: Life after Dodd-Frank

Article excerpt


This Note examines the background of foreign-cubed litigation,1 including its development over the past four decades, its abrogation by the Supreme Court, and its potential future under recently enacted legislation. The Note examines the tests developed by the Court of Appeals in order to determine whether a United States court could adjudicate foreign-cubed litigation. Additionally, it reviews the Supreme Court opinion in Morrison v. National Australia Bank and its ultimate rejection of the predominant Second Circuit test for applicability. Finally, the Note discusses "The Dodd-Frank Wall Street Reform and Consumer Protection Act," a provision of which was specifically included to overturn the result in the Morrison decision, its potential impact on future foreign-cubed litigation, and how the courts, litigants, and foreign nations should look to proceed in its wake.



The issues and events surrounding the stock market crash known as "The Great Crash" in 1929 caused a sense of fear and instability among the investing public who questioned the soundness of the nation's financial institutions.2 Stock prices on the New York Stock Exchange had fallen dramatically in October 1929, culminating in a close of 198 points from a previous high of 381 points in September 1929.3 While many factors were blamed for the crash, the most commonly accepted reasons were the lack of clarity, honesty, and availability of reliable financial information regarding securities that were being sold.4 The lack of such information was believed to have prevented investors from making informed investment decisions. In his address to Congress on May 29, 1933, President Roosevelt articulated a need for regulations requiring that "every issue of new securities to be sold ... be accompanied by full publicity and information . . . ."5 Shortly thereafter, Congress passed, and the President signed, the Securities Act of 1933, also known as the Truth in Securities Act or more commonly, the '33 Act.6

The '33 Act required the registration of the offering and sale of any securities that are to be sold using the means and instrumentalities of interstate commerce, unless an exemption applies.7 The following year brought the passage of the Securities Exchange Act of 1934 ('"34 Act").8 Placed in section 2 of the '34 Act were the reasons set forth for regulation of the securities market, including, but not limited to, requiring "appropriate reports, removing] impediments to and perfect[ing] the mechanisms of a national market system for securities . . . ."9 Among the most important sections of the act is the antifraud provision under section 10(b).10 Rule lOb-5, promulgated under section 10(b) allows for criminal and/or private party causes of actions against individuals that scheme to defraud or make any untrue statement of a material fact or omit to state a material fact, or to engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security. ' ' Generally considered the workhorse of public and private securities enforcement, Rule 10b-5 allegations are often brought as class-actions and occasionally by foreign investors for the purchase of foreign securities traded on foreign exchanges, a phenomenon known as "foreign-cubed" ("f-cubed") litigation.12


The mechanism for a foreign investor seeking to avail itself of U.S. law for fraud in the issuance of foreign securities listed on a foreign exchange is found in the interplay of the following sections: under section 11 of the '33 Act, a material misrepresentation or omission in a registration statement will subject an issuer and others associated with an issuer (underwriters and dealers) to rescissory damages (return of purchase price of the security) in a suit brought by purchasers of said securities pursuant to the registration statement. …

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