Dura Pharmaceuticals is a publicly traded company that developed and marketed prescription pharmaceuticals for the treatment of allergies and asthma. Investor plaintiffs brought a class action securities fraud action against Dura under §10(b) of the Securities Exchange Act, alleging that Dura knowingly misrepresented the success of the clinical trials for one of their asthma products, transferred the losses incurred from product development to subsidiary corporations in order to perpetuate the perception of high earnings for the parent company, and made repeated public statements regarding the success of its drug sales when sales were actually declining. The plaintiffs also claimed that Dura executives sold approximately $400 million of their personally-held Dura stock, actions which raise suspicions of insider trading.
The trial court dismissed the plaintiffs' complaint, ruling that the plaintiffs had failed to meet the pleading requirements of §10(b) and the Private Securities Litigation Reform Act. On appeal, the Ninth Circuit reversed, ruling that the lower court misinterpreted the loss causation element of §10(b) and that the lower court should have considered the plaintiffs' allegations collectively in order to determine whether the pleading requirements had been met. The Supreme Court granted certiorari in order to provide a clear standard on these two pleading requirement issues.
The Supreme Court will now resolve the question of whether or not plaintiff investors met the pleading requirements to bring a cause of action for federal securities fraud under §10(b) of the Securities Exchange Act against Dura Pharmaceuticals.
Questions as Framed for the Court by the Parties
Whether a securities fraud plaintiff invoking the fraud-on-the-market theory must demonstrate loss causation by pleading and proving a causal connection between the alleged fraud and the investment's subsequent decline in price.