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Corporate & Securities Law

: Wall Street Law Blog

They Can't Handle The Truth: Cause and effect in stock loss litigation...

By Brett D. Sherman

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By Brett Sherman, Esq.

What follows is a pretty accurate recreation of a conversation from this morning with my friend Hillary.

Hillary: "Isn't it going to be tough proving Bear Stearns caused your clients' losses?"

Me: "Well, nothing is easy in litigation. I'm sure JP Morgan will have excellent lawyers with creative defenses. BUT I really think that this thing comes down to cause and effect. I'll put it this way - Bear Stearns ultimately collapsed in March, right?"

Hillary: "Yeah, ok..."

Me: "And what happened to the stock price?"

Hillary: "Bear's stock price?"

Me: "Yeah - and remind me what happened to the price of a share of Bear stock?"

Hillary: "The stock got killed."

Me: "Right. So the stock got killed because Bear collapsed. Put another way, Bear's collapse as a company caused Bear's stock to lose almost all of its value. And what caused my clients' losses?"

Hillary: "They lost money in Bear stock. So Bear's share price collapse caused their losses?"

Me: "And since the fall of Bear Stearns caused the stock price to tank, stock losses are the primary form of damages suffered by my clients. Therefore (I need to use at least one lawyerly word), it is correct to say that the fall of Bear Stearns is the cause, and my clients' losses the effect." As far as I'm concerned, I've just proved to you that Bear caused my clients' to lose money. Now, it is just a matter of proving that fraud, or negligence, or breach of fiduciary duty (excessive risk-taking to chase short-term gain, perhaps?) and we will have proved that, as a matter of law, Bear Stearns is liable for stock losses of my clients."

Hillary: "I'm hungry."

Me: "Yeah, cause and effect can do that to you."