Enough With the Price Inflation Already

OK, all together now. You can’t plead loss causation by merely alleging price inflation. For example, this allegation just isn’t going to work for you: “Class members would not have purchased or otherwise acquired their Compuware common stock, or if they had acquired such securities during the Class Period, they would not have done so at the artificially inflated prices which they paid.” Not convinced? OK, just ask Judge Anna Diggs Taylor (E.D. Mich.), who just found the theory “insufficient as a matter of law” in the Compuware securities class action.

Of course, to be fair, Plaintiffs didn’t go down without a fight, “citing a disclosure that led to a sharp decline in the stock price.” But that doesn’t help too much either when the Judge finds that this “was not a corrective disclosure,” and the complaint “does not allege that a price decline immediately accompanied the… disclosure, leaving the court to speculate what portion of the loss, if any, should be attributed to the disclosure or whether the loss was caused by other factors.”

Result: Summary Judgment for Defendants.

You can read In re Compuware, issued September 12, 2005, at 2005 U.S. Dist. LEXIS 20073.

Nugget: “The Court's opinion in Dura does not merely require a plaintiff to include the magic words ‘direct and proximate’ in connection with its alleged loss. Plaintiffs must do more than use talismanic language to cure an otherwise inadequately pled complaint.”