Pleading and Proving Loss Causation: Litigating Securities Fraud in a Post-Dura World
By William F. Sullivan, Christopher H. McGrath, Joshua G. Hamilton, John J. O'Kane IV and Adam M. Sevel
In 2005, the U.S. Supreme Court handed down its first decision on federal securities laws in almost a decade. Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 366 (2005), addressed the important issue of what a plaintiff must plead and prove to satisfy the "loss causation" element of securities fraud under the Securities and Exchange Act of 1934 (Exchange Act). By forcing plaintiffs to draw a causal connection between fraudulent acts of omissions and the subsequent loss, Dura demands that plaintiffs aver more than artificial price inflation. While Dura's transformative effect has been undeniable, it was only the beginning of the evolution of the significance of loss causation to the application of securities laws. Now, the loss causation analysis applies not only to the civil securities litigation practice, but also impacts alleged criminal securities violations as well. This article considers the approaches different circuits have taken in interpreting Dura and in applying it in five important areas: motions to dismiss, summary judgement, class certification, criminal sentencing, and expert testimony.