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by admin on April 22, 2011

Guest post by Joseph Gulino, DRRT Investigations, Governance & Compliance. Miami, Florida

First published by the ABA International Section of Law, January 2011, Volume 6, Issue 4.


With the decision in Morrison v. National Australia Bank (NAB), the U.S. Supreme Court drastically changed the landscape of investor protection, ruling that the securities laws of the United States do not apply to non-U.S. investors who purchased shares in foreign companies outside the United States. Therefore, these investors will need to seek other jurisdictions abroad as their only chance to recoup losses sustained as a direct result of violations of (U.S.) securities laws, while non-U.S. companies are trying to reassure themselves that the “terrifying” threat of class actions no longer exists.

The NAB decision is important and unprecedented, does not take into account previous decisions of courts of appeals and the test that was applied for over 40 years (the “conduct & effects test”), and will change the protection of global investors by reducing the number of securities class actions filed in the United States, the (so far) most effective – and maybe most abused – system for investor protection in the world. The decision has already resulted in dramatic changes to the investor protection system in the United States, and will continue to have such effect in the future, as courts expand and interpret the Supreme Court ruling. Hence, the basic test for the availability of the U.S. investor protection system is whether the stock in question is traded on a U.S. exchange. The repercussions, however, are numerous.

An interesting twist to this limitation of investor rights is the continued jurisdiction of the SEC over U.S. and non-U.S. companies to pursue enforcement and disgorgement actions in the United States beyond what private investors could do. This is a result of the Dodd-Frank Act of 2010, with a concurrent study on the effect of such “extensive” jurisdiction. The outcome of such study and of the intense lobbying efforts of U.S.-based investors might well be a reversal of NAB or a reinstatement of at least the “effects test” in favor of U.S. based investors, but leaves foreign investors (who provide significant capital investments in U.S. companies) without substantial protection in the United States.

Continue reading the complete article by clicking this link to open in PDF format.


In sum, there will be, in the meantime, a proliferation of litigation in the world where similar issues will be tried in different countries with varying results. There will be different levels of investor protection in different countries. European investors will request more protection, which will, perhaps, be a further motivation for class actions in Europe and for the protection of investors.

There are two recent examples: the EADS and Fortis (now Ageas) cases. Investor Foundations have been established in the Netherlands to bring claims against these two companies and will act on behalf of investors worldwide. These are cases following the example in Royal Dutch Shell, one of the first cases to use Dutch law to protect the interests of aggrieved investors.
Alternatives exist, and we must be vigilant in searching for them and in pursuing all possible means of loss recovery for injured shareholders. Cooperation among law firms with specialties in specific jurisdictions will also be necessary as well to provide the top level of investor protection to affected investors.

And so we wonder: what is happening to the proposals for an introduction of class actions in countries like France and Italy? Will international investors finally request EU-wide jurisdiction or class actions to decide the disputes of shareholders? Meanwhile, we must act, must make decisions and protect investments using the resources that we have now and above all, lawyers must have the capacity to advise on the proposals, opportunities, and drawbacks for all investors.

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