Opinion ID: 3064959
Heading Depth: 5
Heading Rank: 1

Heading: use or employ[ment of] any manipulative or

Text: deceptive device or contrivance; (2) scienter, i.e. wrongful state of mind; (3) a connection with the purchase or sale of a security; (4) reliance, often 10 As Investors concede, any misrepresentations alleged in the Third Amended Complaint did not pertain to Deutsche Bank. 9914 DESAI v. DEUTSCHE BANK SECURITIES referred to . . . as “transaction causation;” (5) economic loss; and (6) loss causation, i.e. a causal connection between the manipulative or deceptive device or contrivance and the loss. Simpson v. AOL Time Warner Inc., 452 F.3d 1040, 1047 (9th Cir. 2006), vacated on other grounds by Avis Budget Group, Inc. v. Cal. State Teachers’ Ret. Sys., 128 S. Ct. 1119 (2008). Reliance establishes the causal connection between the alleged fraud and the securities transaction. See Stoneridge, 128 S. Ct. at 769 (citing Basic, 485 U.S. at 243). To say that a plaintiff relied on a defendant’s bad act is to say that the defendant’s actions “played a substantial part in the plaintiff’s investment decision.” Rowe v. Maremont Corp., 850 F.2d 1226, 1233 (7th Cir. 1988). It is thus “often referred to in cases involving the public securities markets . . . as ‘transaction causation,’ ” Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 341 (2005), presumably because reliance requires an investor-plaintiff to show that he would not have engaged in the transaction in question had he known about the fraud. [6] Reliance can be presumed in two situations. In omission cases, courts can presume reliance when the information withheld is material pursuant to Affiliated Ute Citizens v. United States, 406 U.S. 128, 153-54 (1972). Reliance can also be presumed in certain circumstances under the so-called “fraud on the market theory.” Basic, 485 U.S. at 241-49. Precisely to which cases this presumption applies—that is, to misrepresentation, to omission, to manipulation cases, or to some combination of the three—is an issue the parties contest on appeal. The two presumptions are conceptually distinct. [7] The fraud on the market theory bears some additional explanation. It is a way to show “the requisite causal connection between a defendant’s [bad act] and a plaintiff’s injury,” id. at 243, that lies at the heart of the element of reliance. The theory allows plaintiffs to rely on a “rebuttable presumption DESAI v. DEUTSCHE BANK SECURITIES 9915 of investor reliance based on the theory that investors presumably rely on the market price, which typically reflects the misrepresentation or omission.” No. 84 Employer-Teamster Joint Council Pension Trust Fund v. Am. W. Holding Corp., 320 F.3d 920, 934 n.12 (9th Cir. 2003). The presumption is “based on the hypothesis that, in an open and developed securities market, the price of a company’s stock is determined by the available material information regarding the company and its business.” Basic, 485 U.S. at 241 (internal quotation marks omitted). Therefore, the presumption is usually available “only when a plaintiff alleges that a defendant made material representations or omissions concerning a security that is actively traded in an ‘efficient market.’ ” Binder v. Gillespie, 184 F.3d 1059, 1064 (9th Cir. 1999). In other words, the theory allows the plaintiff to connect causally the defendant’s bad act with the plaintiff’s decision to buy or sell the security, by presuming that the plaintiff based his decision on the price of the security and that such price reflects the defendant’s bad act.