|Securities Fraud Plaintiff Must Show Causation between Misstatement and Loss|
|Description||Supreme Court held that there was no cause of action for securities fraud when shareholders asserted they suffered a loss because stock prices fell after bad news that was contrary to earlier statements by executives about the company's future. Reliance on misstatements and losses suffered must be shown for a cause of action to exist.|
|Key Words||Securities Fraud; Misrepresentation; Causation|
|C A S E S U M M A R Y|
|Facts||Plaintiffs owned stock in Dura Pharmaceuticals. They sued, contending they lost money due to false statements by company executives about possible future profits and, especially, the financial benefits of possible approval by the FDA of a new medicine. FDA approval did not occur and the stock fell. The suit claimed the losses were due to misstatements that the plaintiffs relied upon. District court dismissed, noting that plaintiffs failed to show causation between alleged misstatements and the losses suffered. The Ninth Circuit Court of Appeals reversed, holding that loss causation has been established if plaintiffs owned stock during the time the events in question happened. Dura appealed.|
Reversed. An inflated purchase price will not, by itself, constitute or proximately cause the relevant economic loss needed to allege and prove "loss causation." The basic elements of a private securities fraud action-which resembles a common-law tort action for deceit and misrepresentation-include economic loss and "loss causation." A plaintiff must show not only that had he known the truth that he would not have acted, but also that he suffered actual economic loss. Such evidence must be provided when the suit is filed, or it will be dismissed.
|Citation||Dura Pharmaceuticals, Inc. v. Broudo, ---U.S.--- (2005 WL 885109, S.Ct., 2005)|
Back to Securities Law Listings
©1997-2003 SW Legal Studies in Business. All Rights Reserved.