Securities Law—Second Circuit Accepts Rule 10b-5 Pleading of Economic Loss After Share-Price Recovery—Acticon AG v. China North East Petroleum Holdings Ltd., 692 F.3d 34 (2d Cir. 2012)

Securities and Exchange Commission (SEC) Rule 10b-5 provides the principal remedy for private investors ensnared in fraudulent securities transactions. A successful pleading of a fraud-on-the-market claim under Rule 10b-5 requires a showing of actual economic loss caused by a fraudulently inflated price of a security purchased by the plaintiff. In Acticon AG v. China North East Petroleum Holdings Ltd., the Court of Appeals for the Second Circuit considered whether a defrauded investor’s unrealized opportunity to sell securities at a profit precludes the ability to prove economic loss under Rule 10b-5’s fraud-on-the-market theory. The Second Circuit held that a recovery in share price after the fraud was disclosed to the purchasers does not automatically defeat an inference of economic loss at the pleading stage. . . .