Ninth Circuit Holds that Rule 10b-5 Could Apply to Unsponsored ADRs Traded Over the Counter

In a ruling that potentially expands antifraud liability for non-U.S. issuers, the Ninth Circuit Court of Appeals recently held that sales of unsponsored American Depositary Receipts (“ADRs”) traded in the U.S. over-the-counter (“OTC”) market could constitute “domestic transactions” under the Supreme Court’s Morrison v. National Australia Bank  decision. The ruling is significant because it raises the possibility that an issuer that did not take affirmative steps to offer ADRs in the United States could be subject to claims under Section 10(b) of, and Rule 10b-5 under, the U.S. Securities Exchange Act of 1934 (the “Exchange Act”).

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