The Second Circuit’s decision in Waggoner v. Barclays PLC, 875 F.3d 79 (2d Cir. 2017) has garnered attention for its rulings on the requirements for showing and rebutting market efficiency and the related presumption of reliance in class actions brought under §10(b) of the 1934 Securities Exchange Act. Less noticed—but no less important—is the court’s discussion of the damages that the certified class might recover. Specifically, the court, in the course of addressing the relevance of damages models to class certification, reached out to observe that class members’ harm included the stock price declines caused both by the announcement of a regulatory action revealing the misconduct at issue in the §10(b) suit and by the potential fines that might follow from such a regulatory action. Id. at 106. The court’s remark that these losses may be counted as damages—rather than requiring that they be disaggregated from recoverable losses in any damages calculation—appears contrary to its established rules on damages and loss causation and, although plainly dicta, may cause confusion among trial courts, leading them to permit a significantly expanded, but wholly unwarranted, scope of damages in §10(b) actions.
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