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18.7 Securities—Damages

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If you find for the plaintiff on [his] [her] [its] 10b-5 claim, then you must consider and decide the amount of money damages to be awarded to the plaintiff. You may award only actual damages, in that amount which will reasonably and fairly compensate the plaintiff for the economic loss [he] [she] [it] sustained. Your award must be based on evidence and not upon speculation, guesswork or conjecture. The plaintiff has the burden of proving damages, by a preponderance of the evidence.


"The usual measure of damages for securities fraud claims under Rule 10b-5 is out-of-pocket loss; that is, the difference between the value of what the plaintiff gave up and the value of what the plaintiff received. Consequential damages may also be awarded if proved with sufficient certainty. . . . The district court may apply a rescissory measure of damages in appropriate circumstances." Ambassador Hotel Co. v. Wei-Chuan Inv., 189 F.3d 1017, 1030 (9th Cir.1999) (citing DCD Programs v. Leighton, 90 F.3d 1442, 1449 (9th Cir.1996). The Supreme Court decision in Dura Pharmaceuticals Inc. v. Broudo, 544 U.S. 336, 125 S.Ct. 1627 (2005), highlights the difficulty in framing an instruction premised on a theory that the price on the date of purchase was inflated because of a misrepresentation. See Comment to Instruction 18.6 (Securities—Causation). Comparable difficulties could arise where there are several different transaction dates, multiple plaintiffs or a class action; in such cases, computations based on average prices during the applicable trading period might prove necessary. Disgorgement of profits, typically an equitable remedy sought by the Securities and Exchange Commission, also would be difficult to calculate. Cf. SEC v. Happ, 392 F.3d 12, 31 (1st Cir.2004) (in insider trading action brought by SEC, "the proper amount of disgorgement is generally the difference between the value of the shares when the insider sold them in possession of the material, nonpublic information and their market value ‘a reasonable time after public dissemination of the inside information’ . . .. The amount of disgorgement ‘need only be a reasonable approximation of profits causally connected to the violation.’" (citations omitted). See also SEC v. JT Wallenbrock & Associates, 440 F.3d 1109 (9th Cir.2006).

Because of the above-described complications, often expert testimony is proffered in calculating damages in 10b-5 actions. See In re Imperial Credit Industries, Inc. Securities Litigation, 252 F.Supp 2d 1005, 1014–15 (C.D. Cal. 2003); In re Oracle Securities Litigation, 829 F.Supp 1176, 1181 (N.D. Cal. 1993).