8 NINTH CIRCUIT CASES GOODWIN of Toshiba’s total reported profits during the relevant period, as well as $9.9 billion in equity. As a result, Toshiba’s stock price declined by more than 40%, constituting a loss of $7.6 billion in market capitalization. On June 4, 2015, holders of Toshiba American Depository Shares (“ADRs”) filed a class action lawsuit under Sections 10(b) and 20(a), and Rule 10b-5, against Toshiba and its current and former CEOs. ADRs are financial instruments that enable investors in the Unit- ed States to buy and sell stock in foreign corporations such as Toshiba. The SEC has stated that ADRs “allow U.S. investors to invest in non-U.S. companies and give non-U.S. companies easier access to U.S. capital mar- kets.” The district court dismissed the complaint with prejudice, on the basis that under Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010), the 1934 Act does not apply extraterritorially, and thus does not apply to the purchase of Toshiba ADRs because the over-the-counter market on which the ADRs were sold was not a “national exchange,” and there was no domestic transaction between ADR purchasers and Toshiba. Plaintiffs appealed. The Ninth Circuit first held that Toshiba ADRs “fit comfortably within the Exchange Act’s definition of ‘security,’” as ADRs are registered with the SEC and possess characteristics typically associated with com- mon stock: “(i) the right to receive dividends contingent upon an apportionment of profits; (ii) negotiability; (iii) the ability to be pledged or hypothecated; (iv) the conferring of voting rights in proportion to the number of shares owned; and (v) the capacity to appreciate in value.” Moreover, the Ninth Circuit reasoned, the “economic reality” of ADRs is “closely akin to stock” because: ADRs are denominated in U.S. dollars, cleared through U.S. settlement systems, and listed alongside U.S. stocks; prospective ADR investors have access to English translations of informational material provided to Toshiba’s common stockholders; and ADR owners can obtain legal ownership of Toshiba common stock in exchange for their ADRs at any time. The Ninth Circuit declined to decide whether the 1934 Act applied to the ADR transactions at issue because the over-the-counter market on which the ADRs were sold was a “national exchange.” Expressly adopting the Second and Third Circuits’ so-called “irrevocable liability” test for determining whether securities purchases and sales are “domestic transactions” subject to the 1934 Act, the Ninth Circuit held that the ADR transactions at issue potentially were covered “domestic transactions” because the inves- tors, over-the-counter desk, and several Toshiba ADR depositary institutions were based in the U.S., and thus the purchasers and sellers potentially incurred irrevocable liability to one another in the U.S. upon the completion of the ADR trades. The Ninth Circuit con- cluded that the district court erroneously denied plain- tiffs leave to amend their complaint to add allegations establishing that the ADR transactions were “domestic transactions.” The Ninth Circuit reversed and remanded the decision for further proceedings in the district court, holding that while plaintiffs had failed to adequately allege the existence of a domestic securities transac- tion, leave to amend would not be futile. Thereafter, Toshiba filed a petition for a writ of certiorari with the U.S. Supreme Court, and a decision on that petition has not yet been issued.