The Fourth Circuit ruled yesterday that a plaintiff can sufficiently plead loss causation to establish a securities-fraud claim based on an “amalgam” of two theories: corrective disclosure, and materialization of a concealed risk. In so holding, the court concluded in Singer v. Reali that the issuer’s disclosure of a government subpoena and an analyst’s report discussing that subpoena collectively revealed sufficient additional information to connect the company’s alleged misstatements and omissions to the subsequent 40% stock-price drop.
Because of the Fourth Circuit’s “amalgam” analysis, it is unclear whether and, if so, to what extent the Singer decision is in tension with decisions by other Courts of Appeals holding that disclosures of governmental investigations or internal investigations do not, without more, sufficiently establish loss causation for pleading purposes. Various appellate courts appear to be putting their own refinements on the analysis, and the law might not be entirely settled on this issue.
The Ninth Circuit recently joined the debate on whether the heightened pleading standard of Fed. R. Civ. P. 9(b) or the more relaxed notice-pleading standard of Fed. R. Civ. P. 8(a) applies to pleading loss causation for a federal securities-law claim. The Ninth Circuit sided with those Circuits holding that Rule 9(b) applies to loss causation as to other elements of a securities-fraud claim.