Supreme Court to Decide Reach of Securities Law Outside U.S.
The justices agreed to review a ruling by a U.S. appeals court in New York that upheld the dismissal of the lawsuit after two large write-downs in 2001 related to the bank’s unit, HomeSide Lending Inc.
The appeals court ruled U.S. courts did not have jurisdiction to decide the lawsuit because the key allegations at the heart of the fraud occurred outside the United States.
The bank purchased HomeSide Lending in 1998 for $1.22 billion. In 2001, the bank announced two write-downs totaling $2.2 billion. HomeSide was later sold to Washington Mutual Inc. In 2008, JPMorgan Chase purchased the banking assets of Washington Mutual.
The National Australia Bank said in 2001 it had used incorrect interest assumptions to calculate the fees it would generate from servicing mortgages in future years.
Four shareholders filed the lawsuit. It involved foreign plaintiffs suing a foreign issuer in an American court for violations of the U.S. securities laws based on securities transactions in foreign countries.
A federal judge and then the appeals court dismissed the lawsuit, prompting the appeal by the shareholders to the Supreme Court. Their attorneys argued the appeals courts were divided over when jurisdiction existed involving transactional securities fraud.
They said the anti-fraud provisions of the securities laws apply to transnational securities frauds that principally or exclusively result in losses to overseas investors so long as the domestic conduct was material to the scheme’s success and a substantial part of the alleged fraud.
The U.S. Justice Department, representing the views of the Securities and Exchange Commission, urged the Supreme Court to reject the appeal, saying the appeals court correctly dismissed the lawsuit.
The Supreme Court is likely to hear arguments in the case in March, with a decision expected by the end of June.
(Editing by Maureen Bavdek)
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