Ninth Circuit Sets the Standard in Securities Class Action
Investors filed a securities fraud class action against a solar panel maker and its officers alleging material misrepresentations designed to inflate the company’s stock price in violation of the Securities Exchange Act. The plaintiffs complained of six price drops over a four-year period with a total decline in share price of about 89%. The Ninth Circuit Court of Appeals determined the correct test for loss causation under the federal Act is a general proximate cause test. The plaintiff need not prove the market actually learned of the suspected fraud and reacted to it. Rather, "[t]hat a stock price drop comes immediately after the revelation of fraud can help to rule out alternative causes. But that sequence is not a condition of loss causation."