On April 19, the U.S. Supreme Court issued a landmark decision that should provide a measure of relief to many companies facing "fraud on the market" class actions.
The decision, Dura Pharmaceuticals v. Broudo, addresses the requirements of a federal securities suit with respect to proving the cause of losses resulting from misrepresentations made in connection with the purchase or sale of securities.
Justice Stephen Breyer, a former Harvard Law School professor and Massachusetts resident serving on the federal court of appeals, penned the Supreme Court decision overruling the Ninth Circuit. The Ninth Circuit had equated the cause of economic loss with the mere inflation of a stock price attributed to a misrepresentation. The Supreme Court ruled that to be error: Federal securities fraud claims must now establish that the stock price loss for which suit is brought was caused by a disclosure of the truth underlying the fraud alleged.