Tuesday's decision by the 2nd U.S. Circuit Court of Appeals is the
latest ruling to limit the reach of U.S. civil securities fraud
laws, under a 2010 U.S. Supreme Court precedent that imposed a
presumption against applying U.S. law to conduct outside the
Writing for a three-judge panel, Circuit Judge José Cabranes said
that precedent, Morrison v. National Australia Bank, bars investors
who buy foreign issuers' securities on foreign exchanges from
pursuing U.S. fraud claims against those issuers, even if their
securities are cross-listed on U.S. exchanges.
Gregory Castaldo, a Kessler Topaz Meltzer & Check partner
representing the plaintiffs, did not immediately respond to requests
Robert Giuffra, a partner at Sullivan & Cromwell representing UBS,
said in an email: "We're pleased with today's decision, which ends
this litigation once and for all."
UBS from 2007 to 2009 took more than $48 billion of writedowns on
residential mortgage-backed securities and collateralized debt
obligations, and in 2009 reached a $780 million settlement with
regulators to end a criminal tax probe.
The plaintiffs claimed that their UBS shares lost value because the
bank concealed risks that led to these costs.
In September 2011, U.S. District Judge Richard Sullivan in Manhattan
dismissed claims by foreign and domestic plaintiffs who bought UBS
shares on foreign exchanges, and a year later dismissed all
Upholding these rulings, Cabranes said Morrison meant that four of
the plaintiffs, three foreign and one domestic, could not invoke a
key U.S. securities law, the Securities Exchange Act of 1934, to
pursue their fraud claims.
"The focus of the Exchange Act is upon purchases and sales of
securities in the United States," he wrote. "This evinces a concern
with the location of the securities transaction and not the location
of an exchange where the security may be dually listed."
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He said the U.S. plaintiff, the Oregon Public Employees Board, could
not get around this by having placed a "buy order" for its
Switzerland-listed UBS shares in the United States.
As to UBS' disclosures of its mortgage-related exposures, Cabranes
said the plaintiffs failed to show the bank materially misled them
about its risk management, saying "we do not recognize allegations
of 'fraud by hindsight.'"
He also said UBS properly revealed its involvement in multiple tax
probes and the threat of money damages and criminal penalties.
"Disclosure is not a rite of confession," he wrote.
Cabranes also wrote an August 2013 decision involving convicted
money manager Alberto Vilar, which extended Morrison by finding that
U.S. criminal laws addressing securities fraud also don't extend
outside the country.
The case is City of Pontiac Policemen's and Firemen's Retirement
System et al v. UBS AG, 2nd U.S. Circuit Court of Appeals, No.
(Reporting by Jonathan Stempel in New York; Additional reporting by
Nate Raymond; Editing by Richard Chang)
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