Court narrows stock fraud claims

April 19, 2005 at 10:41 AM
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WASHINGTON, April 19 (UPI) -- The U.S. Supreme Court has ruled paying an inflated price for a stock because of false statements is not enough to show a securities fraud injury.

A unanimous opinion written by Justice Stephen Breyer Monday said plaintiffs must show a direct connection between a defendant's action and the loss.

The ruling came in a case brought by people who bought stock in Dura Pharmaceuticals Inc. The purchases were made after some Dura officials allegedly made misrepresentations, or false statements, about future Food and Drug Administration approval of a new asthmatic spray device.

The purchasers claimed in federal court that the deception caused them to buy the stock at an inflated price.

A federal judge dismissed the suit, saying the buyers had not shown a "loss causation," or a causal connection between the spray device misrepresentation and their eventual financial loss. A federal appeals court reversed.

The Supreme Court reversed the appeals court, ruling an inflated price by itself does not prove a "loss causation." The justices sent the case down for a new hearing.

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