Plausible Cause: Exploring the Limits of Loss Causation in Pleading and Proving Market Fraud Claims Under Securities Exchange Act Section 10(b) and SEC Rule 10b-5
Robert N. Rapp
Case Western Reserve University School of Law
January 3, 2014
Loss causation is a critical element in both pleading and proving private market fraud actions asserting violations of Securities Exchange Act §10(b) and SEC Rule 10b-5. In the wake of the U.S. Supreme Court’s decision in Dura Pharmaceuticals, Inc. v. Broudo, in which the Court made clear that plaintiff investors asserting “fraud-on-the-market” claims must demonstrate that alleged market losses are actually linked to an actionable information failure constituting a violation of these provisions, lower courts have wrestled with the sufficiency of pleading loss causation on motions to dismiss, and as a matter of presenting evidence on motions for summary judgment, and more recently at trial. “Corrective disclosures,” “manifestation of a concealed risk,” “disclosure events” on a market deception timeline, along with “confounding factors” and “disaggregation” of investor losses have all become paramount considerations in framing actual, recoverable investor losses. In this article, the prominence of loss causation as a determinative element in pleading and proving market fraud claims is explored with a view to establishing limits as a matter of law and common sense in an open market setting.
Number of Pages in PDF File: 121
Keywords: Rule 10b-5, fraud-on-the-market, loss causation
Date posted: January 4, 2014
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