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The Securities Act Of 1933 And Foreign Securities Transactions - Morrison Strikes Again

Two years after the U.S. Supreme Court decided Morrison v. National Australia Bank Ltd., 130 S.Ct. 2869 (2010), the reverberations of this landmark decision continue to be felt. Indeed, in a recent decision by the U.S. District Court for the Southern District of New York, In re Vivendi Universal, S.A. Securities Litigation, No. 02 Civ. 5571 (RJH), et al., 2012 WL 280252 (S.D.N.Y. Jan. 27, 2012), the District Court not only reaffirmed the application of Morrison to the Securities Exchange Act of 1934 (the "Exchange Act"), it broadened Morrison's reach to also include claims brought under the Securities Act of 1933 (the "Securities Act").

With Morrison, the U.S. Supreme Court weighed in on the issue of whether the Exchange Act applies extraterritorially; that is, to the purchase or sale of securities made on a foreign exchange or in a foreign country. The U.S. Supreme Court declared in Morrison that it does not: "Section 10(b) [of the Exchange Act] 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."

In re Vivendi has now gone one step further than Morrison. Following the lead of two Southern District of New York decisions from last year, In re Royal Bank of Scotland Group PLC Securities Litigation, 765 F.Supp.2d 327 (S.D.N.Y. 2011) and SEC v. Goldman Sachs & Co., 790 F.Supp.2d 147 (S.D.N.Y. 2011), the District Court held that the Securities Act - not just the Exchange Act - lacks extraterritorial application. In In re Vivendi, the plaintiffs were individual shareholders who purchased Vivendi shares on the EuroNext, S.A. (also known as the "Paris Bourse"). They alleged that defendants made materially false and misleading statements about Vivendi's financial health, which then caused the share prices to be overvalued and artificially inflated. On this basis, the shareholder plaintiffs asserted claims for violations of Sections 10(b) and 20(a) of the Exchange Act, as well as violations of Sections 11, 12(a)(2), and 15 of the Securities Act. Relying on Morrison, the District Court dismissed all of these claims and, in so doing, concluded that while Morrison indeed involved an Exchange Act claim only, nonetheless, the decision's "underlying logic counsels extending its holding to cover the Securities Act." Thus, by virtue of purchasing their shares on the Paris Bourse, the shareholder plaintiffs were barred from bringing any claims against defendants both under the Exchange Act and the Securities Act.

Undoubtedly, we have not heard the last of the Morrison decision, and as its implications continue to unfold, Shepherd, Finkelman, Miller & Shah, LLP will continue to monitor and advise you of new developments.

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