Two Steps To Tango

NERA Economic Consulting has published an interesting working paper entitled “Loss Causation and Damages in Shareholder Class Actions: When It Takes Two Steps To Tango.” The author, Dr. David Tabak, discusses the circuit court split between courts that believe plaintiffs must demonstrate a causal connection between the alleged misrepresentations and a subsequent decline in the stock price to adequately plead loss causation (e.g., Emergent Capital Investment Management, LLC v. Stonepath Group, Inc., 343 F.3d 189 (2d Cir. 2003)) and courts that believe plaintiffs merely need to demonstrate that the alleged misrepresentations artificially inflated the stock price (e.g., Broudo v. Dura Pharmaceuticals, Inc., 339 F.3d 933 (9th Cir. 2003)).

Dr. Tabak finds that “if plaintiffs have to plead either only a purchase inflation or only a later price decline, some investors will ‘successfully’ plead loss causation without having suffered a loss.” Accordingly, there is a logical argument that plaintiffs should have to plead both a purchase inflation and a later price decline related to the fraud to survive a motion to dismiss. The article also discusses how the different loss causation pleading requirements impact the calculation of damages.

Leave a comment

Filed under All The News That's Fit To Blog

Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s