November 11, 2003

Loss Causation Still In The Spotlight

The summer of loss causation cases has turned into the fall of loss causation articles examining those decisions.

A column in the October 24, 2003 edition of the New York Law Journal focuses on the decisions in Broudo (9th Cir.) and Merrill Lynch (S.D.N.Y.), The authors conclude that the "fraud on the market theory should not be expanded to enable plaintiffs to establish both transaction and loss causation." (For The 10b-5 Daily's take on Broudo and Merrill Lynch - see here and here.)

Quote of note: '[I]f the fraud on the market theory can serve double duty in this way, then the distinction between these two forms of causation will have collapsed. This is inappropriate. The PSLRA expressly codifies loss causation as a separate, free-standing element of a Section 10(b) claim."

Not to be outdone, the November 6, 2003 edition of the New Jersey Law Journal has its own article (via law.com - free registration req.) on loss causation. The article discusses the recent Emergent Capital (2d Cir.) decision and finds that the Second Circuit "has now plainly ruled that purchase-time price inflation is not enough and the plaintiff must in all cases plead a causal link between the complained-of omissions and the economic loss that was ultimately suffered." (For The 10b-5 Daily's take on Emergent Capital - see here.)

Quote of note: "In many cases, it may be that the same omission or misrepresentation that allegedly caused price inflation at the time of the transaction in fact also caused a subsequent decline in the securities' market value when the misrepresentation becomes apparent or the undisclosed problem wreaks injury. But the lesson of Emergent Capital (and Semerenko in the 3rd Circuit) is that such a causal link cannot be presumed; it must be pleaded and proved."

Posted by Lyle Roberts at November 11, 2003 4:07 PM | TrackBack
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