December 11, 2012 Articles

Second Circuit Limits Use of Post-Disclosure Share Price Recovery

The court rejected the holdings of every district court to decide this securities fraud class action question.

By Tammy P. Bieber and Sarah Mendola

When an issuer’s share price drops following a corrective disclosure and recovers shortly thereafter, such that the share price bounces back to the plaintiff’s purchase price but not to a level that eliminates damages under the Private Securities Litigation Reform Act (PSLRA), the Second Circuit has concluded that the complaint cannot be dismissed as a matter of law on grounds that a plaintiff who held shares through the bounce-back did not sustain an economic loss. Rosado v. China North East Petroleum Holdings Ltd., 692 F.3d 34 (2d Cir. 2012). In so doing, the court rejected the holdings of every district court to decide the question as well as that of another panel of the Second Circuit, and seems to put forth an expanded view of lost profits in a securities class action brought under section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.

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