Stock Price Gain - Not Necessarily Plaintiff’s Loss

Law360, New York (October 26, 2012, 4:01 PM ET) -- The Second Circuit's recent decision in Acticon AG v. China North East Petroleum Holdings Ltd.¹ appears to foreclose a defendant's ability, at the motion to dismiss stage, to use an increase in stock price following a corrective disclosure to refute a claim of economic loss, a required element for a damages claim under Section 10(b) of the Securities Exchange Act of 1934. The decision rejects reasoning previously applied by district courts, limiting the ability at the pleading stage to challenge allegations that a plaintiff has properly demonstrated loss causation.

Background

Acticon AG brought a putative class action in the United States District Court for the Southern District of New York against China North East Petroleum Holdings Limited (NEP), alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. Acticon acquired shares in NEP between January and May of 2010. Acticon alleges