The Ninth Circuit recently decided a case, Automotive Industries Pension Trust Fund v. Toshiba Corp., in which the Circuit court considered the application of the Supreme Court's territoriality standard in the Morrison v. National Australia Bank Ltd. case. The court considered whether purchasers of Toshiba unsponsored ADRs on the over-the-counter market were precluded from bringing Section 10(b) and 10b-5 claims under the Securities Exchange Act of 1934. The Ninth Circuit concluded that the Morrison standard did not preclude the claims. Finding that the OTC market does not constitute an exchange, the Circuit court nonetheless concluded that under Morrison one would look to where purchasers incurred the liability to take and pay for the securities and where the sellers incurred the liability to deliver the securities to the purchasers. To the extent that these elements took place in the United States, the transaction would be deemed to be a domestic transaction and Exchange Act claims arising in connection with the transaction can be brought in the United States. Although, in this particular instance, the Ninth Circuit determined that plaintiffs failed to show that the relevant transactions were "domestic" and remanded to the district court on this matter, the Circuit court decision stands for the proposition that concluding that a transaction is "domestic" is enough to bring a securities claim in the United States. For issuers that have unsponsored ADR programs and had no role in setting up the ADR program and derive no benefit from the unsponsored ADR program, the decision may raise serious concerns. So, at least in the Ninth Circuit, there no longer seems to be a difference between a sponsored and an unsponsored ADR program for purposes of liability.
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