Blair A. Nicholas is a Managing Partner at Bernstein Litowitz Berger & Grossmann LLP. This post is based on a Bernstein Litowitz publication by Mr. Nicholas, Jonathan Uslaner, and Jai K. Chandrasekhar.
The Second Circuit Court of Appeals this week handed down two decisions important to investor rights: In re Vivendi, S.A. Securities Litigation (“Vivendi“) and GAMCO Investors, Inc. v. Vivendi Universal, S.A. (“GAMCO“).
In Vivendi, the Second Circuit (i) clarified the requirements for proving “loss causation” in securities fraud cases and (ii) endorsed the “inflation-maintenance” theory of liability, under which defendants may be liable for false statements that maintain (but do not increase) the price of a company’s stock. Meanwhile, in GAMCO, the Second Circuit made clear that the fraud-on-the-market theory may be rebutted in efficient-market cases where a security’s price is inflated by fraud only in the extraordinary instance where plaintiff would have bought the security even if it had actual knowledge of the alleged fraud.