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Freshfields Transactions

| 1 minute read

Unsponsored ADR programmes and Rule 10b-5 (again)

Non-US companies face increased hurdles in establishing a lack of involvement in unsponsored ADR programmes to avoid US securities fraud claims

In 2018, we alerted you to an unwelcome case in the 9th Circuit, (Stoyas v Toshiba896 F.3d 933 (9th Cir. 2018)), which opened the door to increased securities fraud claims for foreign companies with “unsponsored” ADR programmes (and created a circuit split in the process). The Supreme Court denied certiorari in 2019 and the case was remanded to the district court.

As a reminder, unsponsored ADR programmes are set up, generally without the company’s involvement, by financial institutions that want to establish a US over-the-counter market in the ADRs. The company’s involvement in the establishment of these programmes is a key predicate to establish liability for securities fraud (at least in the 9th Circuit, which has been more plaintiff friendly than most).

The district court denied (Stoyas v Toshiba424 F.Supp.3d 821 (C.D.Cal. 2020)) Toshiba’s dismissal motion (which requires the court to accept plaintiff’s allegations as true), in part on the basis that plaintiff’s allegation that the shares underlying the ADR programme were, given the number of shares held through the programme (1.3% of Toshiba’s outstanding common stock), unlikely to have been acquired without the consent, assistance or participation of Toshiba, sufficiently alleged Toshiba’s “plausible” participation in the establishment of the ADR programme.

We have published a more detailed analysis of the case, including suggestions for affected companies, in our client alert.

Please do not hesitate to reach out to your usual Freshfields contacts if you have any questions.


financial institutions, corporate, americas, capital markets