By declining to issue shares on a U.S. stock exchange, a foreign company may believe it is avoiding the risk of having a securities class action brought against it in a U.S. court. Not necessarily. An example is the Vivendi Universal securities class action currently pending in the S.D.N.Y. Vivendi is a French corporation and the plaintiffs are foreign investors who purchased their stock on foreign stock exchanges. Nevertheless, the plaintiffs have brought suit for violations of U.S. securities laws.
In a recent decision (In re Vivendi Universal, SA Sec. Litig., 2004 WL 2375830 (S.D.N.Y. Oct. 22, 2004)), the court has confirmed that it has subject matter jurisdiction over the claims. The general standard in the Second Circuit is that a court may exercise jurisdiction over securities claims asserted by foreigners if: “a) there was conduct in the United States that directly caused the foreigners’ losses and (b) such conduct was more than ‘merely preparatory’ to a securities fraud conducted elsewhere.” In this case, the court found that Vivendi’s CEO and CFO had “moved their operations to New York and spent at least half their time managing the company from the United States during a critical part of the class period.” The court held that this was sufficient to conclude that the U.S.-based conduct was integral to the alleged fraud.
The New York Law Journal has an article (via law.com – free regist. req’d) on the decision.
The 10b-5 Daily 