Dismissing plaintiff investors’ securities fraud allegations against a company and four affiliated individuals, a federal district court held, among other things, that plaintiffs’ amended complaint failed to plead facts sufficient to establish loss causation. Plaintiffs alleged that they paid more than the actual value of the securities at issue because they relied on defendants’ misrepresentations of the company’s worth. The court ruled that, even assuming the alleged misrepresentations were made, plaintiffs still failed to plead facts that could establish that the misrepresentations proximately caused their economic loss and, thus, could not satisfy the loss causation element of their claim.
The Subscription Agreements plaintiffs signed acknowledged that they had been warned about “the tenuous nature of [the defendant-company’s] finances” and informed about the company’s “past operating losses, its current and potential future financial problems, the constraints on its management from liquidity problems, [and] the prospect that it might never be able to implement its business plan.” The court also concluded that, at the time they invested, plaintiffs knew they were investing in a “faltering company,” that employees were foregoing salary payments, and that they might never be able to sell their shares. In the light of these specifically disclosed warnings, the court ruled it “impossible” for the plaintiffs to establish that defendants’ alleged misrepresentations “caused” their loses, finding, to the contrary, that having decided to invest despite these warnings, “their economic losses are theirs to bear.” (Majer v. Sonex Research, Inc., 2008 WL 282257 (E.D. Pa. Jan. 31, 2008))