After a jury found that the defendant committed securities fraud under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, a district court granted the defendant’s motion for judgment as a matter of law. The plaintiffs alleged in their securities fraud class action lawsuit that the defendant corporation and two of its officers made material misstatements that caused the investors to suffer loss once the truth was disclosed. According to plaintiffs, the misstatements conflicted with findings in a report prepared by a governmental agency concerning the defendant company’s business that the company was aware of but that had yet to be made public. Significantly, following the publication of nationwide news reports of the agency’s findings, the market price of the company’s stock did not change. Five days later, however, following the issuance of analyst reports that addressed the agency findings and downgraded the company’s stock, the stock price dropped significantly. The jury found that the analyst reports were “corrective disclosures” that caused the investors’ loss, thereby satisfying the “loss causation” element of plaintiffs’ securities fraud claim.
In support of their motion to overturn the verdict, the defendant argued that the evidence did not support a finding of “loss causation” because, among other reasons, the analyst reports did not provide any new, “fraud-revealing analysis.” Instead, the reports merely summarized past disclosures made through the nationwide news reports. The court agreed, noting that under the federal securities laws, fraud actions are available “not to provide investors with broad insurance against market losses, but to protect them against those economic losses that misrepresentations actually cause.” After finding that the original news reports acted as corrective disclosure for the defendant’s alleged misstatements and that their disclosure did not impact the defendant’s stock price, the court held that there was no evidence to support a finding of loss causation. Accordingly, the court overturned the jury verdict and granted the defendant judgment as a matter of law. (In re Apollo Group, Inc. Securities Litigation, 2008 WL 3072731 (D. Ariz. August 4, 2008))