Investigations and Loss Causation

On August 8th, the Ninth Circuit affirmed the dismissal of a securities fraud suit. The court held that the announcement of an investigation, standing alone, does not establish loss causation. The announcement doesn’t reveal to the market the existence of fraudulent practices. It simply puts investors on notice of a potential future disclosure of misconduct. Consequently, any decline in a corporation’s share price following the announcement of an investigation can only be attributed to market speculation about whether fraud has occurred. This type of speculation cannot form the basis of a viable loss causation theory. Loos v. Immersion Corp.

Affidavit Supported Need for Discovery in Stockholder Class Action

On August 6th, the First Circuit reinstated a stockholder class action suit challenging the fairness of a corporate merger. The court held that in light of plaintiffs’ Rule 56(d) affidavit outlining the discovery they needed to respond to defendants’ dispositive motion, plaintiffs should have been afforded the opportunity to conduct additional discovery. The court therefore vacated the entry of summary judgment and remanded the matter for further proceedings. In re PHC, Inc. Shareholder Litigation.