Tens of millions of people may be affected by the 2014 Second Circuit rejection of the “listing theory” for foreign securities, according to Ralph Ferrara, a member of Proskauer’s securities litigation practice.

1. Second Circuit “Listing
Theory” Rejection May
Impact Tens of Millions
BY RALPH FERRARA

2. Tens of millions of
people may be
affected by the 2014
Second Circuit
rejection of the “listing
theory” for foreign
securities, according
to Ralph Ferrara, a
member of
Proskauer’s securities
litigation practice.

3. • On May 6, 2014, the U.S. Court of
Appeals for the Second Circuit
ruled that the 2010 decision
made by the Supreme Court in
Morrison v. National Australia
Bank precludes claims based on
the purchase, via foreign
exchanges, of foreign-issued
securities that are cross-listed on a
U.S. market.
• In his ruling, Judge José Cabranes
further held that, even when an
order for the purchase of foreign
securities on a foreign exchange
is placed in the United States by a
U.S. entity, that fact alone is
insufficient to incur irrevocable
liability in the United States.

4. • The Morrison decision concluded that Section
10(b) of the 1934 Securities Exchange Act, which
deals with position limits and accountability for
large trader reporting and security-based swaps,
is only applicable to transactions in securities that
are listed on U.S. exchanges, or to securities
transactions that occur in the United States.
• In other words, Section 10(b) is not necessarily
applicable to foreign securities simply because
they happen to be cross-listed on a U.S.
exchange.

5. Consequences
• Speaking with The United States Law Week, a Bloomberg BNA
publication, following the Second Circuit ruling, Ferrara expressed
the view that the decision is a continuation of the significant
transformation that securities law has undergone post-Morrison.
• Ferrara stated that the regime has shifted from one actively
attempting to export U.S. law to one retrenching itself by focusing
solely on domestic exchanges and transactions.
• He fears that the Second Circuit ruling means that millions of
claimants may now have no choice but to bring their claims in
countries and legal regimes hostile to shareholder suits.