Opinion ID: 391276
Heading Depth: 3
Heading Rank: 1

Heading: Time frame for damages.

Text: 29 This circuit applies ordinary causation and mitigation principles in 10b-5 cases. Plaintiffs' damages in a 10b-5 case are limited by what they would have realized had they acted to preserve their assets or rights when they first learned of the fraud or had reason to know of it. They cannot recover that part of their loss caused by their own failure, once they had reason to know of the wrongdoing, to take reasonable steps to avoid further harm. Foster v. Financial Technology Inc., 517 F.2d 1068, 1072 (9th Cir. 1975). The trial court found that Arrington knew or should have known of defendants' fraud on August 26, 1974. 30 Defendants argue that the trial court should have cut off damages as of August 9, 1974. They choose that date because the court found that by August 1, 1974 Arrington realized that Richie's promises of substantial short term gains on the Gulf Oil, Syntex, Monsanto, and Stone & Webster stocks were not going to materialize. 31 This argument overlooks a significant part of the misrepresentation the trial court found defendants had made. Richie failed to tell Arrington about the multiplier effect margin financing has on a trader's losses in a declining market. There is nothing in the record before us to indicate that Arrington became aware of this fact before Merrill Lynch sent the Arringtons their first margin maintenance call. 32 Similarly, plaintiffs have not shown why the cut-off date chosen by the district court is clearly erroneous and should have been later. Even assuming the defendants perpetuated their fraud with false assurances of a rebounding market, the nature of the danger of holding securities on margin in a declining market must have become apparent when plaintiffs received their first maintenance call. The choice of August 26 as the cut-off date for plaintiffs' damages is not clearly erroneous. 33