Securities Litigation Alert: Second Circuit Addresses Standard for Pleading Loss Causation Under Dura Pharmaceuticals

On August 1, 2012, the Second Circuit decided Acticon AG v. China North East Petroleum Holdings, Limited, No. 11-4544-cv, considering the standard for pleading loss causation -- that is, the necessary causal relationship between an alleged fraud and actual economic loss -- in private civil actions under Section 10(b) of the Securities Exchange Act and SEC Rule 10b-5. The Supreme Court previously addressed this issue seven years ago, holding that a plaintiff’s allegations that it purchased securities at a price artificially inflated by supposed fraud are not alone sufficient to plead loss causation. See Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 342 (2005). The Acticon panel considered issues that remained unresolved in the Second Circuit following Dura, and its opinion will influence the ability of plaintiffs to proceed with federal securities fraud claims against public companies and their directors, officers and outside professionals.