Ninth Circuit Holds That Non-U.S. Issuers Can Be Liable in U.S. for Unsponsored American Depositary Receipt Facility: Transactions in Unsponsored American Depositary Receipts Can Qualify as “Domestic” Transactions Subject to Suit Under U.S. Securities Laws

Sullivan & Cromwell LLP - July 30, 2018
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On July 17, the U.S. Court of Appeals for the Ninth Circuit issued its decision in Stoyas v. Toshiba Corporation, holding that plaintiffs can sue non-U.S. issuers for securities fraud in connection with over-the-counter purchases of unsponsored American Depositary Receipts (“ADRs”).  In the case, plaintiffs sued Toshiba, a Japanese corporation with common stock traded only on the Tokyo Stock Exchange, over alleged misstatements that artificially inflated the value of Toshiba’s unsponsored ADRs in the United States.
Although the Ninth Circuit’s decision expands the scope of liability for non-U.S. issuers in connection with certain ADRs, the law remains uncertain as courts nationwide have adopted conflicting interpretations of the presumption against extraterritoriality in the context of ADRs. Furthermore, the Ninth Circuit’s opinion might be narrower than it appears, given that the court also held that plaintiffs must plausibly allege that the non-U.S. issuer had made a misstatement “to induce” the purchase of ADRs, as opposed to inducing the purchase of its stock in general.