Courts Interpret Securities Law in Wake of Dura

Most of the defense bar applauded the Supreme Court's April 2005 decision in Dura Pharmaceuticals Inc. v. Broudo because it significantly tightened the reins on securities fraud cases. Dura rejected the notion that simply alleging the stock price was inflated at the time of purchase due to misrepresentation gives rise to an action for fraud.

But the decision has created some unforeseen problems. The court left a vacuum in the jurisprudential landscape by failing to specify what allegations would meet the burden of pleading and proving that a misrepresentation caused the plaintiffs' economic loss. It remained unclear whether a plaintiff must show that the decline in stock price followed a corrective disclosure by the defendant. Dura also failed to establish what degree of connection was required between the corrective disclosure and the decline.

Just a few days later, Southern District Judge Robert Sweet granted defendants' motion to dismiss a federal securities action in Joffee v. Lehman Brothers Inc. Here, the complaint alleged only that defendants' misrepresentations artificially inflated the value of the company's shares--falling short of the Lentell standard.

Around the same time, another Southern District judge dismissed federal securities claims in Dresner v. Inc. Judge Sidney Stein held that the complaint "contained no indication as to what loss was occasioned" by defendants' allegedly fraudulent conduct.


Julius Melnitzer

Bio and more articles

Join the Conversation

Advertisement. Closing in 15 seconds.