A federal court in California refused to grant a judgment or a new trial to a defendant who was found to have engaged in insider trading when he purchased securities of one company based on material nonpublic information (“MNPI”) about a different company. The September 9, 2024 decision in SEC v. Panuwat (N.D. Cal.) leaves intact a jury verdict that could embolden the SEC to pursue more claims of “shadow trading,” which involves trading the securities of a public company that was not the direct subject of the MNPI but whose stock price allegedly was affected by a “spillover” impact from that information.
U.S. District Court for the Central District of California
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.