Remedies for Foreign Investors Under U.S. Federal Securities Law

In its 2010 decision in Morrison v. National Australia Bank, the Supreme Court held that the general anti-fraud provision of U.S. securities law applies only to (a) transactions in securities listed on domestic exchanges and (b) domestic transactions in other securities. That decision forecloses the use of the “foreign-cubed” class action, and in general precludes the vast majority of claims that might otherwise have been brought in U.S. court by foreign investors. This article assesses the post-Morrison landscape, addressing the question of remedies in U.S. courts for investors defrauded in foreign transactions. It begins by reviewing the current case law, analyzing the approaches that courts have used in applying Morrison and highlighting certain weaknesses in the transaction-based test adopted in that case. It then investigates two potential paths for foreign investors: litigation brought in U.S. federal courts under foreign, rather than domestic, securities law; and participation in FAIR fund distributions ordered by the Securities and Exchange Commission