Multinational Class Actions Under Federal Securities Law: Managing Jurisdictional Conflict

By:

This article examines a form of securities class action that is growing increasingly popular in U.S. courts: the “foreign-cubed” action, brought against a foreign issuer on behalf of a class that includes foreign investors who purchased securities on a foreign exchange. These cases are becoming an important part of the regulatory landscape, and they create the potential for particularly severe conflict with other countries on the question of how best to regulate global economic activity. Yet they point out quite clearly that the traditional conduct and effects tests for subject-matter jurisdiction are inadequate to the task of delimiting the reach of U.S. securities laws in the global capital markets. The article draws on a study of forty-five foreign-cubed claims. It analyzes the arguments made by foreign investors seeking to justify the application of U.S. law to their claims—arguments that base an expansive theory of regulatory jurisdiction on the interconnections among the world’s capital markets. It then turns to judicial disposition of such claims, addressing the various stages of litigation (including class certification) at which courts confront jurisdictional questions and identifying a series of assumptions that courts make in attempting to draw jurisdictional lines. Examining those assumptions, the article concludes that courts operating within the current jurisdictional framework cannot adequately manage the regulatory conflicts that foreign-cubed claims present. It therefore supports a jurisdictional limit based on the location of investment transactions.