In securities class action lawsuits, the potential price impact of factors not associated with, but disclosed concurrently to, the corrective disclosure—commonly referred to as “confounding” factors—is often the subject of heated debates among lawyers and experts. In a recent Houston Business and Tax Law Journal article coauthored with attorneys from Latham & Watkins LLP, Brattle Principal Dr. Torben Voetmann and Senior Associate Dr. Nguyet Nguyen discuss the loss causation analysis in the context of securities class actions stemming from third-party corrective disclosures such as short-sellers’ reports.

The authors cite several securities class actions arising from short-sellers’ reports to illustrate the complex and multi-faceted inquiry needed to establish loss causation in these cases. It is important to consider the counterfactual disclosures (i.e., what could have been disclosed) in the context of the actual disclosures (i.e., what was actually disclosed). The authors discuss the existing guidance from the courts as well as academic evidence, which suggest that experts and counsels might need to consider confounding factors beyond disclosures unrelated to the alleged frauds. In certain circumstances, the manner in which the alleged corrective information is disseminated, including the tone of the language, the presentation of the facts and the associated “media impact”, might need to be carefully analyzed.

The full article, “Counterfactuals in Securities Class Actions: An Illustration Using Third-Party Corrective Disclosures,” is available for download below.

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