A federal district court in Virginia recently held that the federal securities laws can apply to transactions in a foreign issuer’s unsponsored American Depositary Receipts (“ADRs”) that traded over the counter in the United States. However, the court ruled that statements by the foreign issuer’s U.S. subsidiary had not been sufficiently attributed to the foreign parent so that they could be deemed to have been made “in connection with” purchases of the parent’s ADRs.
American Depositary Receipts (“ADRs”)
California Federal Court Holds U.S. Securities Laws Inapplicable to Unsponsored, Unlisted ADR Transaction Preceded by Purchase of Common Stock Outside the U.S.
By Jonathan Richman on
The U.S. District Court for the Central District of California held on January 7, 2022 that the federal securities laws do not apply to U.S. transactions in unlisted, unsponsored American Depositary Receipts (“ADRs”) for a foreign issuer’s shares where the ADR purchases depended on prior purchases of the underlying common stock on a foreign exchange. The decision in the long-running Stoyas v. Toshiba Corporation case illustrates the importance of investigating the factual circumstances underlying purchases of unlisted ADRs even if securities claims based on those transactions might survive a motion to dismiss, as they had done here.