National Australia Bank Fraud Case Gets U.S. High Court Query
By Greg Stohr
June 1 (Bloomberg) -- The U.S. Supreme Court signaled it may consider how far the country’s securities fraud laws extend overseas, asking the Obama administration for advice on a shareholder lawsuit against National Australia Bank Ltd.
Australian shareholders of Melbourne-based NAB want the justices to review a federal appeals court’s decision that the suit was beyond the jurisdiction of U.S. courts. The investors’ appeal says HomeSide Lending Inc., formerly a Florida-based mortgage-service subsidiary of NAB, fraudulently overvalued its assets, eventually forcing $2.2 billion in writedowns.
Should the high court take up the case, it would become one of the top business disputes of the nine-month term that starts in October. The U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association and the Securities and Exchange Commission all filed briefs when the dispute was before the 2nd U.S. Circuit Court of Appeals in New York.
The justices directed their request today to U.S. Solicitor General Elena Kagan, the administration’s top courtroom lawyer. She will receive input from the SEC, which supported the investors at the appeals court.
The case stems from NAB’s disclosure in 2001 that interest- rate assumptions used by HomeSide in a valuation model were incorrect and caused inflated estimates of mortgage-servicing fees. Writedowns in 2001 caused the bank’s American depositary receipts to fall more than 11 percent.
Fraud in the U.S.
The shareholders contend that the core of the alleged fraud occurred in the U.S., giving American courts jurisdiction to consider the case and apply U.S. securities laws.
“Every false statement made by NAB concerning HomeSide’s operations, results and value was a repetition of the false financial information that HomeSide concocted in Florida for the very purpose of misleading NAB’s shareholders,” the appeal argued.
The 2nd Circuit rejected that reasoning, noting in its 3-0 ruling that NAB compiled and issued its public statements in Australia.
“The actions taken and the actions not taken by NAB in Australia were, in our view, significantly more central to the fraud and more directly responsible for the harm to investors than the manipulation of the numbers in Florida,” the three- judge panel said.
NAB told the Supreme Court that “every single one” of the alleged misstatements and omissions were made in Australia by the parent company. NAB acquired HomeSide in 1998, then sold it to Washington Mutual Inc. in 2002.
Courts around the country have used different standards to determine whether judges can consider so-called “foreign cubed” lawsuits, those that involve non-U.S. plaintiffs, corporations and markets.
The case is Morrison v. National Australia Bank, 08-1191.
To contact the reporter on this story: Greg Stohr in Washington at firstname.lastname@example.org. Last Updated: June 1, 2009 10:03 EDT