## Facts

- Harold Pinker, a U.S. investor, purchased American Depositary Receipts (ADRs) of Roche Holdings Ltd., a Swiss corporation.
- ADRs permit U.S. investors to trade interests in foreign companies through U.S. markets.
- Pinker alleged Roche made misrepresentations and omissions about competition in the vitamin market while its subsidiaries participated in a worldwide vitamin price-fixing conspiracy.
- Pinker claimed the ADR price was artificially inflated by the alleged misstatements and that the ADR price fell as information about the collusion emerged, causing investor losses.
- Pinker brought a putative class action alleging violations of § 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5.

## Issues

1. Whether a federal court could exercise personal jurisdiction over a foreign issuer based on its sponsorship of ADRs actively traded by U.S. investors.
2. Whether the complaint adequately pleaded the reliance element of a § 10(b)/Rule 10b-5 claim under the fraud-on-the-market theory despite some prior public information about price-fixing.

## Decision

- The Third Circuit reversed the district court’s dismissal for lack of personal jurisdiction.
- The court held Roche’s sponsorship of ADRs actively traded in the United States constituted purposeful availment of U.S. securities markets, creating constitutionally sufficient minimum contacts with the United States.
- The court held exercising jurisdiction was consistent with traditional notions of fair play and substantial justice because the alleged misrepresentations were directed to and harmed ADR investors in the U.S. market.
- The Third Circuit reversed the dismissal for failure to plead reliance.
- The court held the complaint adequately invoked the fraud-on-the-market presumption by alleging material misstatements that distorted the ADR market price and purchases made at the inflated price.
- The case was remanded for further proceedings.

## Legal Principles

- In federal securities cases, the personal jurisdiction inquiry focuses on a defendant’s contacts with the United States as a whole when nationwide service is authorized.
- A foreign issuer that sponsors ADRs actively traded by U.S. investors purposefully avails itself of U.S. markets and may be subject to personal jurisdiction for claims arising from that market activity.
- For § 10(b)/Rule 10b-5 claims, reliance may be pleaded through the fraud-on-the-market theory by alleging an efficient market price was distorted by material misstatements and the plaintiff purchased at that price.
- The presence of partial prior public information does not defeat reliance at the pleading stage where the complaint plausibly alleges the market had not yet fully incorporated the truth and later disclosures caused further price adjustment.

## Conclusion

The Third Circuit held that a foreign company’s sponsorship of ADRs traded in U.S. markets can establish personal jurisdiction in a federal securities-fraud action and that a plaintiff may adequately plead reliance by alleging a market-price distortion and purchase at an inflated price under the fraud-on-the-market theory.


Pinker v. Roche Holdings Ltd., 292 F.3d 361 (3d Cir. 2002)