By: Soufiane Cherkaoui, Senior Associate

“F-cubed” lawsuits involve foreign investors who purchased shares of foreign issuers on foreign exchanges. Increasingly, these securities class actions are being brought in U.S. courts. Foreign investors resort to U.S. courts in hopes of dissuading issuers from litigation. The costs and expenses associated with litigation in U.S. courts makes settlement of these securities disputes all the more appealing.

Recently in Morrison v. National Bank of Australia, the defendant issuer – National Australia Bank (“NAB”) – witnessed its stock price drop precipitously on the Australian Stock Exchange. This price drop was related to losses sustained at HomeSide Lending, then a Florida mortgage servicing company wholly-owned by NAB. Australian purchasers of NAB shares brought a class action against NAB in the Southern District of New York alleging fraud. The Second Circuit Court of Appeals affirmed the dismissal of the suit against NAB for lack of subject matter jurisdiction. Ultimately, the court concluded that the alleged fraud involved activity having taken place in Australia. The court’s ruling in Morrison v. National Bank of Australia set a significant precedent, circumscribing plaintiffs’ ability to initiate similar suits in the future.

“F-cubed” cases, however, continue to raise important issues regarding the Securities Exchange Act’s extraterritorial applicability. With the Morrison decision, the Second Circuit declined to adopt a bright-line ban against all “f-cubed” securities actions. Thus, foreign investors having suffered losses at the hands of foreign issuers will be hard-pressed to maintain an action covered by American securities laws. Absent a showing that the alleged fraudulent conduct occurred in the United States, the Morrison decision suggests that “f-cubed” litigation will be dismissed. In order to overcome dismissal, plaintiffs must therefore demonstrate an effect on American investor