Professor Ronald Colombo is serving as co-counsel on (and co-author of) an amicus brief representing German and American securities law professors in the Second Circuit case Elliott Associates v. Porsche, No. 11-447. The case implicates the extra-territorial application of anti-fraud rule Section 10(b) and the Morrison v. NAB Supreme Court opinion of 2010. Some of the world’s foremost securities law experts have signed onto the brief (which was submitted to the Court on Aug 3, 2011), including Yale’s Roberta Romano, Stanford’s Joe Grundfest, Harvard’s Mark Ramseyer, UCLA’s Lynn Stout, and Hamburg’s Heribert Hirte, among others.
The brief argues that the plaintiffs in this case (various American hedge funds) cannot sue the defendant (Porsche) under Section 10(b) because the alleged fraud in connection with the security-based swap agreement is not covered by Section 10(b).
(1) based on the totality of the circumstances the security based swap agreements at issue were not transactions inside the United States for purposes of Morrison.
(2) the court below reached the right result because even if some transactional components of the security based swap agreements may have been inside the United States, other more important transactional components of the securities based swap agreements were in Germany, the market for the underlying reference security. Even if technical arguments can be made in favor of locating part of the transactions in the United States because some of the parties to the swap agreement were allegedly in the United States, the part of the transactions complained about by the plaintiffs in this lawsuit involved the trading of the underlying reference security in Germany. Non-U.S. components of the security based swap agreement were the only components relevant to this lawsuit, and the transaction thus was outside the United States for purposes of Morrison.
(3) Congress, when it added security-based swap agreements to Section 10(b) in 1999, did not intend to create a broad private right of action by parties to security based swap agreements against issuers and traders of underlying securities, particularly when those underlying securities are traded outside the United States.