This recent Fourth Circuit opinion concludes that a liability finding under Rule 10b-5 in a private securities case does not necessarily require an award of damages.
In this case, a short seller publicized negative statements about a company in which he held a substantial short interest. Shareholders of the company sued the short seller on the theory that his statements were material misrepresentations that defrauded the market and caused the company’s stock price to decline in value. The jury in the case returned a verdict that held the short seller liable, but awarded a big fat zero in damages. As one would expect, the shareholders on appeal argued that the jury finding of liability required the award of damages in some amount.
Noting that it was a case of first impression, the Fourth Circuit disagreed and noted that courts “often refer to the fact of proximately caused damage and the amount of proximately caused damage as involving separate, although related, inquiries.” Thus, the Court reasoned in affirming the lower court’s judgment of no damages, a jury could find that “(1) the plaintiff proved the defendant’s fraud constituted a substantial cause of plaintiff’s loss and so find the defendant liable but (2) the plaintiff failed to provide a method to discern, by just and reasonable inference, the amount of plaintiff’s loss solely caused by defendant’s fraud, and so refuse to award the plaintiff any damages.”
Hat tip to the 10b-5 Daily for the link to this case.