Securities Litigation

Second Circuit Revives Securities Fraud Class Action, Finding Economic Loss Where Stock Price Rebounds Soon After Fraud Is Disclosed

Imagine a plaintiff who buys stock in a company that subsequently discloses a misstatement in its financial statements that existed at the time plaintiff invested.  The stock price drops upon the initial disclosure, and then rebounds back above the purchase price. Can that plaintiff plead economic loss, as is required under Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005)? According to the Second Circuit, the answer is yes. READ MORE

Madoff Fund Investors’ Exchange Act Claims Bite the Morrison Dust

Courts have been making slow but steady progress in testing the limits of the 2010 Supreme Court case Morrison v. Nat’l Australian Bank Ltd., 130 S.Ct. 2869 (2010). In Morrison, the Court held the federal securities laws apply only to purchases or sales made “in connection with the purchase or sale of a security listed on an American stock exchange, and the purchase or sale of any other security in the United States.” Id. at 2888. The Second Circuit has held that the “purchase and sale” of a security occurs when “irrevocable liability” occurs and the parties are bound to the transaction. Absolute Activist Value Master Fund v. Ficeto, 677 F.3d 60 (2d Cir. 2012) READ MORE

Monoline Insurer Hoist with its Own Petard

A common claim alleged by monoline insurers is that RMBS sponsors fraudulently induced them to provide the insurance by misrepresenting the quality of loans and underwriting.  As the story invariably goes, the insurer only discovered that it was defrauded after its vendor reviewed a sample of several hundred loan files, and was shocked to find that most loans, usually alleged to be somewhere between 75% to 95% of the sample, breached representations and warranties.  On May 4, a New York court turned these types of post-loss file reviews against the insurer in CIFG Assur. N.A., Inc. v. Goldman Sachs & Co., Index No. 652286/2011 (N.Y. Sup. Ct.).  Here, the court found that the very same file sampling and review easily could have been done – and legally should have been done – in the insurers’ due diligence.  The insurer’s failure to conduct adequate due diligence when it issued its policy required dismissal of its fraud claim for lack of reasonable reliance. READ MORE