Morrison v. National Australia Bank Ltd.

Extraterritorial application of Section 10(b) and Rule 10b-5 to transnational securities transactions.

Australian investors who purchased shares of National Australia Bank on foreign exchanges sued in U.S. court, alleging that misleading conduct connected to a Florida mortgage-servicing subsidiary inflated the bank's financial statements.

The Court held that Section 10(b) applies only to transactions in securities listed on domestic exchanges and domestic transactions in other securities.

Justice Scalia applied the presumption against extraterritoriality and rejected the lower courts' conduct-and-effects tests. The opinion adopted a transaction-focused rule to reduce uncertainty over the global reach of U.S. securities law.

1. How does the rule affect information production, investor reliance, and enforcement costs?
2. What are the likely error costs for lawful market activity and for undetected misconduct?