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The Supreme Court held 4/19/05 that allegation and proof of an inflated stock price at the time of the stock purchase are insufficient to plead and prove loss causation in a securities fraud action. Rather, plaintiffs must allege and show that they suffered an actual loss and that the defendant's misrepresentations caused that loss. After purchasing stock in Dura Pharmaceuticals, Respondents brought a class-action suit against Dura for securities fraud. In their complaint, Respondents alleged that they had suffered economic loss due to payment of artificially inflated prices for Dura securities. The district court dismissed the complaint for failure to allege loss causation adequately, but the Ninth Circuit reversed. Justice Breyer's opinion for the court explains that payment of an inflated purchase price does not itself result in a loss to the buyer because, at the time of purchase, the buyer possesses a stock equal in value to the inflated price. Furthermore, even if the buyer later sells the stock at a lower price, his loss may result from factors other than the earlier misrepresenation. The Court also held that mere allegation that a plaintiff purchased stock at an inflated price is insufficient to plead economic loss or loss causation. Although "ordinary pleading rules are not meant to impose a great burden upon a plaintiff," a complaint must "provide a defendant with some indication of the loss and the causal connection that the plaintiff has in mind."

This case is important to individuals and businesses subject to private securities litigation alleging a violation of Rule 10b-5 (17 C.F.R. § 240.10b-5).