US Investors And Firms Closely Watch Securities Fraud Case

by Glen Shapiro, LawAndTax-News.com, New York

14 January 2005

US businesses and investors are keeping a close eye on a securities fraud case currently being heard by the Supreme Court, which is attempting to determine the proper standard for such offences.

The suit was brought by investors in Dura Pharmaceuticals Inc., who are trying to recoup losses incurred following a drop in the firm's stock price in February 1998. However, the case is complicated by the fact that the share price was sent plunging by an earnings shortfall unrelated (and nine months prior) to the event that the investors are trying to tie to their losses.

Lawyers for the aggrieved investors reportedly argued this week that losses incurred before Dura's November 1998 announcement that its asthma drug dispenser had not received federal approval should be counted, because suspicions had already begun circulating that something was amiss with the device.

An earlier 9th US Circuit Court of Appeals ruling followed this line, allowing the investors to go forward with their case under the corporate fraud theory of loss causation, which meant that the investors need not show that their losses were directly caused by a fraudulent disclosure, as long as they could show that the firm's share price was artificially inflated at the time of purchase.

According to the Associated Press, a Supreme Court ruling on the matter is expected in June of this year.

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