The calamity that began as a U.S.-based subprime mortgage meltdown has now grown into a global financial crisis that has resulted in bankruptcies and bailouts involving some of the world’s largest financial institutions. Along the way, these financial institutions’ investors have seen their investment interests damaged or destroyed, leaving many angry and aggrieved. If a new lawsuit is any indication, investors aggrieved by their lost investments in global financial institutions may be turning to the U.S. courts for redress.


As reflected in their press release (here), on October 22, 2008, plaintiffs’ attorneys filed a purported securities class action in the Southern District of New York on behalf of investors who purchased securities of the recently nationalized Belgium-based financial services company, Fortis N.V. , related entities, and certain of its directors and officers.


According to the press release, though the company portrayed itself as stable and largely immune to the turmoil that was sweeping financial markets, "the Company was practically insolvent at all relevant times and needed to sell assets at fire-sale prices and raise capital at extraordinarily high rates to remain viable."


The press release states that the company’s balance sheet was impaired by assets acquired in connection with the company’s October 2007 acquisition of ABN AMRO.


On September 29, 2008, the governments of Netherlands, Belgium and Luxembourg agreed to bailout the company, but only if it were to sell its troubled stake in ABN AMRO. A September 30, 2008 Wall Street Journal article about the action of the three governments, and the role of the ABN AMRO transaction, can be found here. Even though the deal was in the form of an emergency infusion of 11.2 billion Euros ($16.9 billion), it was "not enough to stem Fortis’ continued decline."


On October 4, 2008, the Dutch government took over the company’s operations for 16.8 billion Euros ($23 billion). As the plaintiffs’ lawyers’ press release puts it, "news that the famed financial giant was in ruins and required nationalization further punished Fortis’ already bruised stakeholders." An October 6, 2008 Wall Street Journal article describing the government takeover, including the sale of Fortis banking and insurance assets to BNP Paribas, can be found here.


The plainitffs’ lawyers’ press release adds:


On October 14, 2008, Fortis traded on the Brussels exchange at the lowest levels that it had ever seen since it was formed 18 years ago, after selling most of its operations to three governments and BNP Paribas SA. Fortis, which resumed trading after a six-day suspension, declined 78 percent to 1.22 euro, valuing the Company at 2.86 billion euros ($3.91 billion).


The complaint in this case, which can be found here, apparently purports to be filed on behalf of  ALL investors who bought Fortis shares between January 28, 2008 and October 6, 2008, and not just U.S. domiciled investors or those who bought their shares on exchanges in the U.S. (where Fortis shares trade over the counter). The complaint specifically alleges that Fortis shares trade on the Brussels, Euronext and Luxembourg stock exchanges, as well as in the U.S.


To the extent the class action purports to be filed on behalf of foreign-domiciled investors who bought their shares in Belgium-domiciled Fortis on foreign exchanges, the case appears to present a classic instance of the so-called "f-cubed" problem (the reference is to the three foreign connections – foreign corporate domicile, foreign investor domicile, and foreign exchange location).


This case does not present the extreme situation represented in the lawsuit filed against EADS (and about which I wrote here) in which the foreign company’s shares did not trade in the U.S. at all, but it nevertheless does present all the jurisdictional problems associated with subjecting foreign domiciled companies to potential liability under U.S. securities laws. As I noted here in connection with the recent ruling in the AstraZeneca case, courts increasingly are showing reluctance to project U.S securities liability in connection with f-cubed claims.


There is of course a well-established pattern of foreign domiciled companies becoming involved in U.S. securities litigation. Indeed, just in connection with the current subprime and credit crisis-related litigation wave, there have been U.S. securities lawsuits that have been filed against, Société Générale, Swiss Re, Deutsche Bank, and UBS, among many others.


What sets this most recent lawsuit against Fortis apart from these prior cases, at least in my mind, is that it relates so directly to the dramatic actions of foreign governments to try to salvage the company. These circumstances involve a magnitude, a depth of clearly foreign involvement and interests, and a combination of purely global financial circumstances that could be far beyond the purview of a U.S based court. To be sure, there may well have been misrepresentations made in connection with these events (the complaint certainly makes numerous allegations to that effect), and there may well of course have been misrepresentations of a kind for which the U.S. laws are designed to provide provide relief, which of course will have to be determined at a later date.


The case also involves such a vivid example of the momentous events that have moved across the global financial stage in recent weeks. The litigants will of course present their arguments about whether and to what extent a U.S. court is the appropriate forum here. Those of us not directly involved in the case may ask whether U.S. courts appropriately should perform roving inquests on the bailouts and bankruptcies that emerge around the globe as a result of the current financial crisis.


In any event, the Fortis lawsuit may represent another example of the new wave of credit crisis-related litigation, where the connection to the subprime meltdown is indirect, and the events that triggered the lawsuit are related to the catastrophic events in the financial market place that began to unfold in September 2008. My most recent prior post on this new litigation wave can be found here. On the other hand, it may also be argued that the problems Fortis faced are simply the result of the subprime mortgage exposure and subprime-related investments of the company it acquired, much the same as, for example, Wachovia was exposed to the subprime-related problems from Golden West, which Wachovia acquired.


Here Be Dragons: The ill-fated ABN AMRO transaction is a veritable treasure trove of excesses, extremes and subsequent moral lessons. Undoubtedly a book will be written some day about how the investor consortium led by Royal Bank of Scotland, and including Fortis, outbid (to the consortium’s eternal regret) the prior ABN AMRO bid of Barclays. Until the book comes out, readers may want to refer to the highly abridged version of events on Wikipedia, here.


Were there not so many other current events, the financial pages undoubtedly would be full of what-went-wrong retrospectives on the ABN AMRO deal. It is one more of those amazing things about the current circumstances that, despite the size of the ABN AMRO calamity, it is effectively just background noise in the larger cataclysm.