City of Pontiac Policemen's and Firemen's Retirement System v. UBS AG: The Second Circuit Court of Appeals Further Limits the Extraterritorial Reach of Federal Securities Laws

May 12, 2014

Last week, the U.S. Court of Appeals for the Second Circuit issued its opinion in City of Pontiac Policemen's and Firemen's Retirement System v. UBS AG, No 12-4355, slip op. (2d Cir. May 6, 2014) ("City of Pontiac"), further restricting the extraterritorial application of the Securities Exchange Act of 1934 ("Exchange Act"). The City of Pontiac narrowly interprets the United States Supreme Court's "transactional" test (established in Morrison v. National Australia Bank, 561 U.S. 247 (2010)), which held that section 10(b) of the Exchange Act "only provide[s] a private cause of action arising out of [1] transactions in securities listed on domestic exchanges, and [2] domestic transactions in other securities." Since Morrison, plaintiffs have argued that non-U.S. securities that also happened to be cross-listed on a United States exchange are listed on a domestic exchange and thus covered by the first prong of the transactional test. And U.S. investors who placed orders in the United States that were subsequently executed on a non-U.S. exchange have argued that those orders were "domestic transactions." The Second Circuit, in the City of Pontiac, rejected both of these arguments.

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