Opinion ID: 1249351
Heading Depth: 4
Heading Rank: 2

Heading: Investor Profile Representation

Text: ATSI also claims that the representation in the Securities Purchase Agreement that the Shaar Fund was an accredited investor was fraudulent. The complaint does not sufficiently allege loss causation with respect to this misrepresentation. A plaintiff is required to prove both transaction causation (also known as reliance) and loss causation. Lentell, 396 F.3d at 172; see also 15 U.S.C. § 78u-4(b)(4). Transaction causation only requires allegations that but for the claimed misrepresentations or omissions, the plaintiff would not have entered into the detrimental securities transaction. Lentell, 396 F.3d at 172 (quoting Emergent Capital, 343 F.3d at 197). Loss causation, by contrast, is the proximate causal link between the alleged misconduct and the plaintiff's economic harm. See Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 346, 125 S.Ct. 1627, 161 L.Ed.2d 577 (2005); Lentell, 396 F.3d at 172. To that end, the plaintiff's complaint must plead that the loss was foreseeable and caused by the materialization of the risk concealed by the fraudulent statement. See Lentell, 396 F.3d at 173. The complaint alleges losses (1) through the tremendous decline in ATSI's share price, impairing its access to capital and its viability as a business; and (2) by ATSI's sale of its own stock at depressed prices. It fails, however, to establish any causal connection between those losses and the misrepresentation that the Shaar Fund was an accredited investor. In what appears to be an attempt to meet Lentell 's requirements, ATSI contends that it adequately pled loss causation because the Levinson Defendants made this misrepresentation to induce ATSI to enter into the transaction under the pretense that they were trustworthy, reputable and long-term investor[s], and that when the true risk of their plans materialized through their manipulative acts, ATSI suffered losses. This allegation might support transaction causation; it fails, however, to show how the fact that the Shaar Fund was not an accredited investor caused any loss. See id. at 174 (Such an allegation  which is nothing more than a paraphrased allegation of transaction causation  explains why a particular investment was made, but does not speak to the relationship between the fraud and the loss of the investment. (internal quotation marks omitted)). ATSI is wrong in claiming that these allegations are sufficient to establish loss causation under our decision in Weiss v. Wittcoff, 966 F.2d 109 (2d Cir.1992) (per curiam). In Weiss, the plaintiff agreed to merge his business with the defendant's on the latter's representation that his other company would supply goods and services. Id. at 110. When the defendant sold his other company a year after the transaction, id. at 110, 112, the plaintiff's business suffered subsequent losses from higher costs, id. at 110-11. We held that the complaint adequately pled loss causation because the plaintiff's losses were clearly a proximate result of his reliance on defendants' promises, since defendants' failure to fulfill those promises foreseeably caused [the business's] financial condition to deteriorate. Id. at 111. Weiss is easily distinguishable. There, the complaint established a causal connection between (1) the promise to provide for the business's needs and (2) the business's increased costs when the promise turned out to be false. See id. ATSI, by contrast, fails to show that the subject of the fraudulent statement proximately caused any loss. See Lentell, 396 F.3d at 173 (Thus to establish loss causation, `a plaintiff must allege . . . that the subject of the fraudulent statement or omission was the cause of the actual loss suffered. . . .' (alteration in original)).