Plaintiffs sued defendant for, among other things, violating Rule 10b-5, by making material misrepresentations and omissions in connection with the sale of securities. Plaintiffs asserted that the defendant misrepresented and failed to disclose multiple facts that were material to whether the issuer had the ability to execute and operate its business plan. Defendant moved for summary judgment, asserting that plaintiffs had failed to present evidence of any causal connection between their alleged losses and defendant’s alleged misrepresentations.

The Court first confirmed that a plaintiff must show that the defendant’s alleged misrepresentations caused the loss for which the plaintiff seeks to recover in order to satisfy the loss causation element of a Rule 10b-5 claim. The Court then ruled that to defeat a Rule 10b-5 claim at the summary judgment stage for failure to establish “loss causation,” the defendant must establish, as a matter of undisputed fact, that the decline in the value of the corporation’s shares was not caused by the fraudulent conduct alleged in the complaint.

Applying these standards to the defendant’s summary judgment motion, the Court concluded that a reasonable fact finder could determine that the defendant hid material facts from plaintiffs in soliciting their investments and that plaintiffs’ losses were caused by the hidden facts. Accordingly, the Court denied defendant’s motion, ruling that a trial of the loss causation issue was required. (Calnin, et al. v. Hilliard, 2008 WL 336892 (E.D. Wis. Feb. 5, 2008))