Institutional investors in the U.S. may have lost their ability to sue foreign stock issuers in U.S. courts after a pivotal 2010 Supreme Court decision, but they are finding some success with American depository receipts, and a case now up for Supreme Court review could potentially expand their legal recovery options well beyond ADRs.
"ADRs give plaintiffs a hook in the U.S. Institutional investors seem to be pretty active in these cases," said David Kistenbroker, global co-leader of Dechert LLP's white collar and securities litigation practice in Chicago.
U.S. institutional investors pursued all types of investment litigation cases against foreign companies in U.S. courts until June 2010, when the U.S. Supreme Court ruled in Morrison vs. National Australia Bank that lawsuits against companies involving foreign-bought securities could not be brought in U.S. courts.
The Morrison decision might have had a chilling effect on lawsuits against non-U.S. issuers for a while, but they have increasingly become targets in securities class actions filed in the U.S., regardless of where the allegations occur, Mr. Kistenbroker said. His firm's analysis of cases filed in 2018 found 13% of securities fraud class actions were brought against non-U.S. issuers in 2018.
A Securities and Exchange Commission rule change in 2008 made "unsponsored" ADRs — opposed to ones sponsored by their overseas issuers that can trade on exchanges — highly attractive to major U.S. banks, which reported a 766% growth from 2008 through the third quarter of 2018, when $31 billion were traded.