978-0078023859 Case17_2

subject Type Homework Help
subject Pages 2
subject Words 671
subject Authors Daniel Cahoy, Marisa Pagnattaro

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Case 17.2
561 U.S. 247; 130 S. Ct. 2869; 2010 U.S. LEXIS 5257 [June 24, 2010]
FACTS:
The National Australia Band Limited (National) is the largest bank in Australia.
Its common shares are traded on the Australian Stock Exchange and other foreign securities
exchanges, but this stock is not listed for sale on any exchange in the United States.
What is listed on the New York Stock Exchange is National’s American Depositary Receipts (ADRs).
An ADR represents the right to receive specified shares of a foreign stock.
In February 1998, National purchased a Florida corporation known as HomeSide Lending Inc.
In essence, HomeSide earned profits by collecting mortgage payments. However, any early
payment of mortgages reduced HomeSide’s profits as it reduced its income stream.
National announced it was writing down the value of HomeSide’s assets by $450 million in July
2001 and by another $1.75 billion in September 2001.
The reason for these adjustments was low interest rates causing many borrowers to refinance
existing mortgages. The early payoffs due to the refinanced mortgages hurt HomeSide’s income.
A group of Australian investors filed a complaint in the United States District Court for the Southern
District of New York alleging that the officers of National and HomeSide violated Section 10(b) of
the Securities Exchange Act of 1934.
The basis of this complaint is that the officers misrepresented the calculation of HomeSide’s value
by not considering the reduced income from early payoffs.
PROCEDURE: The District Court dismissed the complaint for lack of jurisdiction. The United States
Court of Appeals for the Second Circuit affirmed.
ISSUE: Whether Section 10(b) of the Securities Exchange Act of 1934 provides a cause of action to
foreign plaintiffs suing (foreign and American defendants) for misconduct with securities traded on
foreign exchanges?
RULE: “Section 10(b) reaches the use of a manipulative or deceptive device or contrivance only in
connection with the purchase or sale of a security listed on an American stock exchange, and the
purchase or sale of any other security in the United States.”
Section 30(b) of the Exchange Act states, The provisions of [the Exchange Act] or of any rule or
regulation thereunder shall not apply to any person insofar as he transacts a business in securities
without the jurisdiction of the United States, unless he does so in violation of regulations promulgated
by the Securities and Exchange Commission to prevent the evasion of [the Act].”
REASONING:
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1. The Courts have repeatedly held that even statutes that contain broad language in their definitions
of “commerce” that expressly refer to “foreign commerce” do not apply abroad. The general
reference to foreign commerce in the definition of “interstate commerce” does not defeat the
presumption against extraterritoriality.
complained of by the petitioners who still have claims occurred outside of the United States.
ADDITIONAL INFORMATION:
District Courts at least in the Southern District of New York have consistently concluded that, by

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