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Damages and costs


What rules and standards govern the calculation and award of damages?

For federal securities claims, damages are governed by statute, as construed judicially over time.  For example, claims under Section 10(b) of the Securities Exchange Act 1934 and Securities and Exchange Commission (SEC) Rule 10b-5 can include various forms of relief, such as injunctive relief and damages. The measure of damages is governed by Section 28(a) of the Securities Exchange Act, which limits recovery to “actual damages”. In Affiliated Ute Citizens of Utah v United States (406 US 128 (1972)) the Supreme Court held that the correct measure of damages under Rule 10b-5 is the ‘out-of-pocket’ measure – in other words, the difference between the price paid or received and the true value at the time of purchase or sale (ie, the fair value in the absence of fraudulent conduct).

Are damages capped?

For statutory claims, damages may be subject to various limitations or ‘caps’. For example, under Section 28 of the Securities Exchange Act, a plaintiff’s recovery cannot exceed actual damages. Specifically, pursuant to Section 21D(e) of the act, actions in which recovery is based on the market price of the stock, damages are capped at the difference between the transacted price and the average of the daily price during a 90-day period after corrective disclosure (15 USC Section 78u-4(e)).

Are punitive damages allowed?

Punitive damages are not allowed for federal securities claims.

Other remedies

Are any other remedies available?

Only the remedies specified by the statutes (as construed over time by judicial decisions) are available.


Who bears the costs of proceedings? Can this burden be shifted in any way?

Under the so-called ‘American rule’, parties generally bear their own costs. Typically, this burden is not altered for securities cases; however, under the Private Securities Litigation Reform Act 1995 (15 USC Section 78u-4(c)), upon the final adjudication of an action, the court must conduct a mandatory penalties review under Rule 11 of the Federal Rule of Civil Procedure. The court must include in the record specific findings regarding each party’s compliance with the requirements of Rule 11. The presumed appropriate penalty for a Rule 11 violation is an award of the opposing parties’ reasonable attorneys’ fees and other expenses.

How are costs calculated? Does interest accrue on costs?

The rules of the jurisdiction in which the case is pending should be consulted.

What rules and procedures apply to the provision of security for costs?

Generally, parties are not required to provide security for costs in a securities suit.

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