Tuesday's decision by the 2nd U.S. Circuit Court of Appeals is the latest ruling to limit the reach of U.S. civil securities fraud laws, under a 2010 U.S. Supreme Court precedent that imposed a presumption against applying U.S. law to conduct outside the country.
Writing for a three-judge panel, Circuit Judge José Cabranes said that precedent, Morrison v. National Australia Bank, bars investors who buy foreign issuers' securities on foreign exchanges from pursuing U.S. fraud claims against those issuers, even if their securities are cross-listed on U.S. exchanges.
Gregory Castaldo, a Kessler Topaz Meltzer & Check partner representing the plaintiffs, did not immediately respond to requests for comment.
Robert Giuffra, a partner at Sullivan & Cromwell representing UBS, said in an email: "We're pleased with today's decision, which ends this litigation once and for all."
UBS from 2007 to 2009 took more than $48 billion of writedowns on residential mortgage-backed securities and collateralized debt obligations, and in 2009 reached a $780 million settlement with regulators to end a criminal tax probe.
The plaintiffs claimed that their UBS shares lost value because the bank concealed risks that led to these costs.
In September 2011, U.S. District Judge Richard Sullivan in Manhattan dismissed claims by foreign and domestic plaintiffs who bought UBS shares on foreign exchanges, and a year later dismissed all remaining claims.
Upholding these rulings, Cabranes said Morrison meant that four of the plaintiffs, three foreign and one domestic, could not invoke a key U.S. securities law, the Securities Exchange Act of 1934, to pursue their fraud claims.
"The focus of the Exchange Act is upon purchases and sales of securities in the United States," he wrote. "This evinces a concern with the location of the securities transaction and not the location of an exchange where the security may be dually listed."
He said the U.S. plaintiff, the Oregon Public Employees Board, could not get around this by having placed a "buy order" for its Switzerland-listed UBS shares in the United States.
As to UBS' disclosures of its mortgage-related exposures, Cabranes said the plaintiffs failed to show the bank materially misled them about its risk management, saying "we do not recognize allegations of 'fraud by hindsight.'"
He also said UBS properly revealed its involvement in multiple tax probes and the threat of money damages and criminal penalties. "Disclosure is not a rite of confession," he wrote.
Cabranes also wrote an August 2013 decision involving convicted money manager Alberto Vilar, which extended Morrison by finding that U.S. criminal laws addressing securities fraud also don't extend outside the country.
The case is City of Pontiac Policemen's and Firemen's Retirement System et al v. UBS AG, 2nd U.S. Circuit Court of Appeals, No. 12-04355.
(Reporting by Jonathan Stempel in New York; Additional reporting by Nate Raymond; Editing by Richard Chang)
By Jonathan Stempel