First off, thank you to Usha for that cordial welcome and to everyone at the Glom.  I must confess to being a bit star struck, and am most appreciative of this opportunity.

Later today I'll be contributing to a program on Morrison v. NAB (US 2010) and subsequent developments.  In my preparation for this program, I came across a recent SDNY case that seems to have gotten things quite wrong.  Shockingly wrong. 

Morrison, you will recall, concerned the extraterritorial application of Rule 10b-5.  In it, the Supreme Court discarded the Second Circuit's "conduct and effects" test.  Instead, the Court held, Rule 10b-5 only reaches securities that (1) are listed on a U.S. securities exchange, or (2) were actually purchased or sold in the United States.  

In In re Soc Gen Sec Litig, 2010 WL 3910286 (SDNY 2010), a post-Morrison case, Judge Richard Berman held that trades in ADRs (American Depository Receipts) are "predominantly foreign transactions" (a quote from pre-Morrison caselaw) and as such fall outside the reach of Rule 10b-5.  He dismissed the claims of plaintiffs who had purchased ADRs in the United States.  Although the ADRs were purchased over-the-counter, Judge Berman added that the same result might follow even if the ADRs were listed on an American stock exchange.

I'm struggling with what part of "listed on a U.S. securities exchange" or "purchased or sold in the United States" the district court missed.  Although the ADRs are certainly connected to a foreign security traded on a foreign market, for that to factor into consideration would seem to be a return to the conduct / effects test that the Court rejected in Morrison.  

I guess that's what appeals courts are for....  

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