July 16, 2013 Articles

Rule 10b-5 Damages at the Trial Stage

The Southern District of New York provides needed direction in upholding a jury award under section 10(b) of the SEA

By Matthew L. Mustokoff and Margaret E. Onasch

Trials in securities fraud cases are exceedingly rare. By way of example, just 12 securities fraud class actions have been tried to a verdict since the passage of the Private Securities Litigation Reform Act of 1995 (PSLRA). See Adam Savett, Securities Class Action Trials in the Post-PSLRA Era (July 24, 2012). Given the dearth of these cases proceeding to trial, the guidance from the courts as to what is required of securities fraud plaintiffs to prove damages is limited. Indeed, summary judgment decisions in the federal securities arena have generally eschewed analyses of damages, holding that so long as a plaintiff has proffered sufficient evidence that the alleged fraud was a substantial factor in causing shareholder losses (i.e., loss causation), summary judgment will be avoided and the issue of quantifying those losses will be reserved for trial. See, e.g., In re Vivendi Universal, S.A. Sec. Litig., 634 F. Supp. 2d 352, 364–65 (S.D.N.Y. 2009) (“[I]t is important not to confuse causation with damages when comparing competing causes for a stock decline. In theory, plaintiffs need only prove that they suffered some damage from the fraud. Liability obviously does not hinge on how much damage.”).

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