Wednesday, September 21, 2005

Short Sellers Come Up Short

Here’s an interesting twist. Instead of suing on behalf of buyers, sue on behalf of sellers. Short sellers to be precise. You know, the investor who speculates “that a particular stock will go down in price and seeks to profit from that drop.” Well, that’s exactly what the Plaintiff did in the Aksys securities class action pending before Judge Mark R. Kravitz (D.Conn.). The court found that Plaintiff (a Mr. Collier) had properly plead fraud and scienter, but (you guessed it) it was loss causation that did him in.

Judge Kravitz found that “because the alleged material omissions and misstatements revealed to the market by Defendants on July 25, 2003 caused the price to drop -- not rise -- Mr. Collier cannot show that the subject of the fraudulent statement or omission was the cause of the actual loss suffered by Mr. Collier and the class of short sellers he purports to represent.” “Indeed, the dramatic drop in Aksys stock should have been the occasion for a short seller to make money, not lose it, since a short seller bets that the stock will fall in price.” So, “based on the simplest and most logical view of the facts alleged, Mr. Collier has not (and apparently cannot) plead loss causation.”

You can read Collier v. Aksys, issued August 15, 2005, at 2005 U.S. Dist. LEXIS 20300.

Nugget: “In reality, all Mr. Collier has done through his so-called ‘hybrid’ claim is turn a relatively simple set of facts into a hopelessly complicated, convoluted, and contradictory mess.”

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