The Gold Standard

In securities class actions, plaintiffs sometimes struggle to establish loss causation where the market does not react consistently to the “revelations of the truth.” An interesting recent example can be found in a decision from the District of Nevada involving a gold mining company.

In In re Allied Nevada Gold CorpSec. Litig., 2016 WL 4191017 (D. Nev. August 8, 2016), the plaintiffs alleged that the company had misled investors about its operational difficulties, cash position, and projected financial performance.  According to the plaintiffs, these problems were slowly revealed to the market in a series of partial disclosures ending in August 2013. All of the alleged partial disclosures, however, did not result in stock price declines.

The July 2013 partial disclosure, for example, led to a stock price increase.  The plaintiffs attributed this anomaly to “surging gold prices.”  The problem with that position, however, was that the subsequent August 2013 partial disclosure and stock price decline occurred in the midst of a sharp drop in gold prices.  The court found that “[p]laintiffs have not offered an adequate explanation as to why Allied’s stock price was tied to the price of gold after one disclosure but not the other.”  Accordingly, the court held that “[p]laintiffs have not adequately alleged that the alleged misrepresentations were a substantial cause in the decline in value of their stock.”

Held: Motion to dismiss granted (plaintiffs also failed to adequately allege falsity and scienter).

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