Litigation against investment managers and service providers involving fraud, breach of fiduciary duty, negligent misrepresentation and other malfeasance in connection with the demise of offshore investment funds is burgeoning. However, the Supreme Court’s June 2010 decision in Morrison v. Australia National Bank, 130 S. Ct. 2869; 177 L. Ed. 2d 535 (2010), the Securities Litigation Uniform Standards Act of 1998 (SLUSA), as well as recent decisions of the federal district courts applying both, have limited the ways investors in offshore funds should bring these actions.
Under the new “transactional test” articulated by Justice Antonin Scalia in Morrison, there is no private right of action under the Securities and Exchange Act of 1934 (15 U.S.C. §78a) unless (1) the claim involves a purchase or sale of a security listed on a domestic exchange; or (2) the claim involves a purchase or sale of other securities in a domestic transaction. This means that investors in offshore funds can no longer assert federal securities claims (namely 10b-5 and 20A claims) unless those investors can establish that their purchases were “domestic transactions.”
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