Defendants First Solar, Inc., were accused of committing several fraudulent acts, which caused the plaintiffs who purchased First Solar stock to suffer great economic loss. The primary allegations include, "wrongfully concealing product defects, misrepresenting the cost and scope of the defects, and reporting false information on financial statements."
The district court found the plaintiffs raised enough material issues to proceed to a jury, but the court's case law presented conflicting causation standards. The first, "that 'drawing a causal connection between the facts misrepresented and the plaintiff's loss will satisfy loss causation,'" and the more restrictive, that "securities fraud plaintiffs can recover only if the market learns of the defendants' fraudulent practices. It is not enough that plaintiffs are injured by the consequences of those practices."
In considering the conflicting standards, the district court ultimately applied the following test: "[a] plaintiff can satisfy loss causation by showing that the defendant misrepresented or omitted the very facts that were a substantial factor in causing the plaintiff's economic loss." The district court then asked the circuit court the following question:
Can a plaintiff prove loss causation by showing that the very facts misrepresented or omitted by the defendant were a substantial factor in causing the plaintiff's economic loss, even if the fraud itself was not revealed to the market (citation omitted), or must the market actually learn that the defendant engaged in fraud and react to the fraud itself (citation omitted)?
The circuit court explained that whether fraud was concealed or exposed to the market before plaintiff's suffered economic harm is the not the determinative factor in assessing causation standards. Ultimately, the court held that the district court applied the correct test, noting also that the "more restrictive test should be understood as fact-specific variants of the basic proximate cause test."
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