While the Dura decision by the Supreme Court suggests that in-and-out traders (i.e., investors who both bought and sold their shares during the class period) cannot establish the existence of loss causation, lower courts have not uniformly applied this principle. In the latest case to consider the issue, In re Comverse Technology, Inc. Securities Litigation, a court in the E.D.N.Y. has issued a decision vacating a magistrate judge’s order appointing the Plumbers and Pipefitters National Pension Fund (P&P) as lead plaintiff in the case. The court concluded that the magistrate judge improperly overvalued P&P’s financial interest in the action by including losses resulting from in-and-out trades.
Citing Dura, the court held that “any losses that P&P may have incurred before Comverse’s misconduct was ever disclosed to the public are not recoverable, because those losses cannot be proximately linked to the misconduct at issue in this litigation.” P&P actually realized a gain on the Comverse shares that it purchased during the class period and held until after the alleged corrective disclosures were made. As a result, the court appointed a different lead plaintiff and lead counsel. The New York Law Journal has an article on the case.
Quote of note (opinion): “While the Dura Court decided a motion to dismiss, and not a lead plaintiff motion, the logical outgrowth of that holding is that [in-and-out] losses must not be considered in the recoverable losses calculation that courts engage in when selecting a lead plaintiff.”