The U.S. District Court for the Northern District of California recently interpreted a seldom-examined provision of the Private Securities Litigation Reform Act (PSLRA), providing crucial—and rare—guidance for securities defendants about the scope of the PSLRA’s 90-day bounce-back provision. The court, in denying a motion to reconsider its selection of a lead plaintiff, adhered to its previous interpretation of the provision, finding that in cases with ongoing corrective disclosures, the cap on damages may be calculated from an earlier partial disclosure, in In re Zoom Securities Litigation, No. 20-cv-025353-JD, (N.D. Cal. April 12, 2021).

The PSLRA and the 90-Day Bounce-Back Provision

Under the PSLRA, a plaintiff’s damages are limited to the difference between the purchase price and “the mean trading price of that security during the 90-day period beginning on the date on which the information correcting the misstatement or omission that is the basis for the action is disseminated to the market.” See 15 U.S.C. Section 78u-4(e)(1). The provision is intended to prevent plaintiffs from reaping a windfall when a corrective disclosure causes a drop in share price, but the price subsequently rebounds. If a plaintiff sells his or her shares before the end of the 90-day period, the mean trading price is calculated between the disclosure and the date of the sale.

The Background to the Zoom Litigation