D&G Law

9th Circuit Makes it Harder to Sue for Securities Fraud

Despite all the corruption that has been revealed within the financial markets – from the concerted manipulation of interest rates, to tipping major investors, to packaging mortgage-backed securities to guarantee a failure for investment banks who bet against their success via their purchase of credit default swaps – Congress and the courts continue to make it more and more difficult for investors to recover their stolen monies.

Most recently, the Ninth Circuit Court of Appeals held that in cases where “a company has issued shares in multiple offerings under more than one registration statement,” a plaintiff who purchased shares on the secondary market must plead specific facts that “give rise to a reasonable inference that [its] shares are traceable” to a particular offering made under a specific registration statement in order to state a claim under Section 11 of the 1933 Act. In re Century Aluminum Co. Sec. Litig., 2013 WL 11887, at *2–3 (9th Cir. Jan. 2, 2013).

Sounds simple – if you allege that a particular offering was fraudulent, you have to allege and prove that you bought shares in that same offering. But Congress has also prohibited investors from having access to key facts (“discovery”) about their potential claims until after a court rules on the sufficiency of the allegations. So now an investor has to plead whether the shares she bought in the aftermarket were traceable to a particular public offering without any ability to conduct discovery to first trace those shares.

This is yet another example of how Congress is systematically stripping the rights of investors. Our financial markets used to be the envy of the world, but the increasing lack of accountability is undergirding our markets, and as a result, the nation’s financial recovery.