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In a decision dated December 30, 2010, the U.S. District Court for the Southern District of New York dismissed six securities fraud actions brought by 46 hedge funds against German car manufacturer Porsche Automobil Holding SE, its former CEO and Simpson Thacher’s client, the former CFO. The hedge funds, which had suffered losses after taking synthetic short positions in Volkswagen via swap agreements referencing VW’s ordinary shares, alleged that Porsche and its executive officers had manipulated and mislead the market in its attempt to acquire VW in 2008. Relying on the U.S. Supreme Court’s landmark decision in Morrison v. National Australia Bank, 130 S. Ct. 2869 (2010), Simpson Thacher and the other defendants argued that Supreme Court’s new test for the extraterritorial application of Section 10(b) of the Securities and Exchange Act precluded the hedge funds’ claims because the VW shares referenced in the swap agreements were not traded on any U.S. exchange and the swap agreements themselves could not be considered domestic transactions. Agreeing with the defendants’ arguments, the Court looked to the economic reality of the transaction. The Court concluded that the swap transactions were the functional equivalent of trading in the underling Volkswagen shares and consequently beyond the territorial reach of Section 10(b).

The Simpson Thacher team was comprised of Mike Chepiga, Paul Curnin, Emma Lindsay and Lexie Pitney, with assistance from paralegal Cyrena Terricone.