Australian suit sets US legal precedent

WASHINGTON: The Supreme Court has put new limits on foreign investors who want to use United States securities law and US courts to sue foreign firms for fraud.

The court said yesterday that foreigners may not sue US or foreign firms for misconduct in connection with securities traded on foreign exchanges.

The case involved a challenge from Australian investors wanting to sue National Australia Bank for securities fraud in US federal court.

The investors say they should have access to US courts because the claim of fraud relies on the actions of a bank-owned mortgage-servicing company in Florida.

"This case involves no securities listed on a domestic exchange," Justice Antonin Scalia said in his majority opinion.

The court voted 8-0 against the investors. The justices unanimously said the main federal securities fraud law, known as section 10(b), does not cover allegations by three Australians who bought NAB shares.

The Australians argued that US courts could consider the case because it centred on alleged wrongdoing by a former US subsidiary of the bank.

"It is in our view only transactions in securities listed on domestic exchanges and domestic transactions in other securities to which Section 10(b) applies," Scalia wrote.

The Australian investors said HomeSide Lending, formerly a Florida-based mortgage-service subsidiary of NAB, fraudulently overvalued its assets, eventually forcing US$2.2 billion ($3.1 billion) in writedowns.

- AP, BLOOMBERG