First Capital conducted little foreign currency trading, lost money on the little trading that it conducted, and never engaged in any profitable business operations. Instead, after transferring investors’ money to an off-shore account, Lowrance and First Capital secretly diverted investor funds to pay fake returns to other, earlier investors in the classic modus operandus of a “Ponzi scheme.”

SEC v. First Capital Savings & Loan, Ltd., No. 11-CV-3451 (N.D. Cal.)

The Court reached this conclusion noting that

For purposes of Rule 10b–5, the maker of a statement is the person or entity with ultimate authority over thestatement, including its content and whether and how tocommunicate it. Without control, a person or entity canmerely suggest what to say, not “make” a statement in its own right. One who prepares or publishes a statement on behalf of another is not its maker. And in the ordinary case, attribution within a statement or implicit from surrounding circumstances is strong evidence that a state-ment was made by—and only by—the party to whom it isattributed. This rule might best be exemplified by the relationship between a speechwriter and a speaker. Even when a speechwriter drafts a speech, the content is entirely within the control of the person who delivers it. And it is the speaker who takes credit—or blame—for what is ultimately said.

See Janus Capital Group v. First Derivative Traders, 564 U. S. ____ (2011)

B8B9KNUKRY2S

Loss causation, by contrast, requires a plaintiff to show that a misrepresentation that affected the integrity of the market price also caused a subsequent economic loss. As we made clear in Dura Pharmaceuticals, the fact that a stock’s “price on the date of purchase was inflated because of [a] misrepresentation” does not necessarily mean that the misstatement is the cause of a later decline in value. 544 U. S., at 342 (emphasis deleted; internal quotation marks omitted). We observed that the drop could instead be the result of other intervening causes, such as “changed economic circumstances, changed investor expectations,new industry-specific or firm-specific facts, conditions, or other events.” Id., at 342–343. If one of those factors were responsible for the loss or part of it, a plaintiff would not be able to prove loss causation to that extent. This is true even if the investor purchased the stock at a distorted price, and thereby presumptively relied on the misrepresentation reflected in that price.

According to the Court of Appeals, however, an inability to prove loss causation would prevent a plaintiff from invoking the rebuttable presumption of reliance. Such a rule contravenes Basic’s fundamental premise—that an investor presumptively relies on a misrepresentation so long as it was reflected in the market price at the time of his transaction. The fact that a subsequent loss may have been caused by factors other than the revelation of a misrepresentation has nothing to do with whether an investor relied on the misrepresentation in the first place, either directly or presumptively through the fraud-on-the-market theory. Loss causation has no logical connection to the facts necessary to establish the efficient market predicate to the fraud-on-the-market theory.

See the opinion at Erica P. John Fund, Inc., FKA Archdiocese of Milwaukee Supporting Fund, Inc., v. Halliburton Co. Et al.,No. 09-1403 (June 6, 2011).

In addition to dismissing the investors’ fraud claims under Federal Rule of Procedure 9(b), the Court dismissed the plaintiffs’ claim of negligence stating:

To prevail on the negligence claim asserted in Count III, plaintiffs must show, among other things, that defendant owed a legal duty to plaintiffs. Plaintiffs do not allege any facts, or cite any Georgia authority, to support their conclusory statement that defendant owed a duty to confirm the accuracy of Provident’s statements in the PPMs. Neither has the Court found any Georgia authority that imposes a duty on a broker to conduct due diligence concerning the investment materials it provides to clients.

In an attempt to bolster their negligence claim, plaintiffs impermissibly seek to raise the new argument that defendant contracted with plaintiffs to receive a fee in exchange for performing due diligence. Such an allegation, made for first the time in response to a motion to dismiss, is plainly inappropriate. Moreover, even if the Court were to consider the new allegation, the complaint would still be deficient because plaintiffs do not allege that they relied in any way on defendant’s efforts. Nor would such reliance be reasonable, as the PPMs expressly advise potential investors that they should only rely on information provided by Provident itself.

Brown v. J.P. Turner & Company, No. 09-cv-02649-JEC, (N.D. Ga. May 17, 2011) (internal citations omitted) (emphasis added).

According to a January 10, 2010, Riskmetrics Report, only eight securities class action cases have been tried to a verdict since 1996. Only seven additional securities class action cases have been tried since 1996 (but not to a verdict), where the conduct at issue was alleged to have occurred after the PSLRA was enacted.

In Notice to Members 11-17 or NTM 11-17, FINRA articulates additional guidance concerning objections based on cost/burden, the consideration of firm business model and customer claims, requests for additional documents, confidentiality and privilege. FINRA also notes that it is replacing the current 14 Document Production Lists with 2 lists of presumptively discoverable documents in every customer case. See the new lists HERE.