Non-US companies with unsponsored ADR programmes may be concerned about whether their liability risk has increased after the recent unfavourable US appeals court decision in Stoyas v Toshiba. They may also be wondering if there is any precautionary action they can consider. The answer is twofold. First, such companies may be more likely to face securities fraud claims (at least in certain courts) but it is unclear whether the risk of liability has really changed. Second, there are some practical steps a company can consider which may mitigate any potentially increased exposure.

The case arose from the plunge in the value of Toshiba ADRs following the 2015 revelation of Toshiba’s accounting fraud, which led to a restatement of its accounts for financial years 2008 – 2014. In the restatements, Toshiba’s pre-tax profits were reduced by roughly one third. Toshiba’s ADRs are not ‘sponsored’ by the company and are traded over-the-counter in the US. Toshiba’s common stock is listed only in Japan. The plaintiffs alleged that they purchased their ADRs in reliance on the accuracy of Toshiba’s financial statements, and were damaged when Toshiba’s fraud was revealed.

For more on what has changed, the steps such companies can consider and what may happen next, please see our briefing available here