Opinion ID: 777877
Heading Depth: 2
Heading Rank: 2

Heading: American Depositary Receipts (ADRs)

Text: 6 Because the role of ADRs is so central to our analysis of personal jurisdiction, we think it important to describe their operation in some detail. ADRs were created in 1927 to assist American investors who wanted to invest internationally, but were reluctant to do so due to regulatory and currency exchange difficulties. See Melissa Wilverding, Depository Receipts, II Global View (Brown Brothers Harriman), 2001, at 3. They also offered significant benefits to foreign companies, allowing them to tap into the American capital market. See id. They have since become one of the preferred methods for trading foreign securities in the United States, with the value of ADRs bought and sold annually in the hundreds of billions. See Bruce L. Hertz, American Depository Receipts, 600 P.L.I./Comm. 237, 239 (1992). 7 An ADR is a receipt that is issued by a depositary bank that represents a specified amount of a foreign security that has been deposited with a foreign branch or agent of the depositary, known as the custodian. Id. at 240-41. The holder of an ADR is not the title owner of the underlying shares; the title owner of the underlying shares is either the depositary, the custodian, or their agent. Id. at 241. ADRs are tradeable in the same manner as any other registered American security, may be listed on any of the major exchanges in the United States or traded over the counter, and are subject to the Securities Act and the Exchange Act. Id. at 242, 246. This makes trading an ADR simpler and more secure for American investors than trading in the underlying security in the foreign market. Id. at 240. 8 ADRs may be either sponsored or unsponsored. An unsponsored ADR is established with little or no involvement of the issuer of the underlying security. A sponsored ADR, in contrast, is established with the active participation of the issuer of the underlying security. Id. at 242-43. An issuer who sponsors an ADR enters into an agreement with the depositary bank and the ADR owners. Id. at 243. The agreement establishes the terms of the ADRs and the rights and obligations of the parties, such as the ADR holders' voting rights. Id. 9 SEC Form F-6 governs the registration of ADRs. Form F-6 requires that the registrant disclose important information related to the issuance of the ADR, including the terms of the depositary agreement (if any), material contracts between the depositary and the issuer, and an opinion of counsel regarding the legality of the ADRs. Id. at 288. Moreover, Form F-6 mandates that the registrant provide in its prospectus a description of the ADRs being registered, including information about fees and charges imposed on the ADR holder. Id. at 286-87. ADRs that are traded on American securities exchanges must abide by the Exchange Act's periodic reporting requirements. Id. at 288-89. ADRs that are not traded on exchanges, such as Roche's, are not subject to the Exchange Act's reporting requirements, but under SEC Rule 12g3-2(b) the issuer must furnish such annual reports, shareholder communications, and other materials that are required to be prepared pursuant to regulations in its home country. See id. at 289-90 (citing 17 C.F.R. § 240.12g3-2(b)). 10 Pursuant to these requirements, Roche filed a Form F-6 registration statement in June 1992 to register 100 million ADRs, and has since filed its annual and semi-annual reports with the SEC in compliance with Rule 12g3-2(b). It is through these annual and semi-annual reports, as well as through press releases, that Pinker alleges that Roche communicated to the investing public its misrepresentations about the competitiveness of the vitamin market from 1996 to 1999.