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Loss causation – the causal connection between a
defendant s fraudulent conduct and a plaintiff s economic
loss – is a required element of a federal securities fraud
claim.
1 A typical securities class action is brought on
behalf of investors who contend they purchased a company s
stock in reliance on corporate misstatements. The investors allege
that they purchased their shares at a price artificially inflated
by the misstatements, and then suffered damage when the truth about
the misstatements was revealed to the market and the stock price
dropped.
Below are high-level takeaways on each topic.
Securities Filings Remain Elevated Despite the Pandemic
Despite unprecedented disruptions to the court system from the COVID-19 pandemic, plaintiffs continued to bring securities class actions at elevated levels in 2020 a sign that filings will remain high in the year ahead. Based on data from Cornerstone Research through September 30, 2020, plaintiffs were on pace to file approximately 375 federal and state securities class actions through the end of the year. Although lower than the more than 400 actions filed in each of the previous three years, this figure substantially exceeds the 261 cases brought, on average, between 2010 and 2019.
Seventh Circuit Vacates and Remands Class Certification in Securities Fraud Action
Carpenters Pension Tr. Fund for N. Cal. v. Allstate Co., No. 19-1830 (7th Cir. July 16, 2020)
In a securities fraud case against Allstate Corporation, the Seventh Circuit vacated certification of a plaintiff class for legal error and remanded the case for further consideration.
In early 2013, Allstate announced it would be “softening” underwriting standards for its auto insurance business in an effort to attract new customers and increase profitability, but it acknowledged the softer standards held the risk of increasing auto claims frequency. The company’s CEO said the company would monitor claims frequency and adjust business practices as necessary. Two years later, Allstate announced that the growth strategy had indeed increased claims frequency and that it would be retightening underwriting standards. Its stock immediately dropped by more than 10 percent.