Opinion ID: 499747
Heading Depth: 2
Heading Rank: 3

Heading: Indirect Reliance

Text: 25 That Zlotnick states his claim in terms of reliance on the market's integrity does not preclude the conclusion that a fraudulent market price was a material factor in his decision to cover. Zlotnick might have changed his investment strategy and actually relied on the integrity of the inflated market price. The rise in price itself may have changed his opinion of the stock's value. The rise may also have increased his risk of loss beyond acceptable levels, causing him to purchase. It may have led him to conclude that the stock would take so long to decline in value that the cost of maintaining his short position would exceed his potential gain. In Peil, this court accepted that a market price which reflects a defendant's misrepresentation may pass that misrepresentation on to potential purchasers. It is only logical to hold that the same price which may communicate a misrepresentation to the traditional investor may also communicate a misrepresentation to the short seller. 26 Zlotnick is entitled to have this court consider as true both his allegations and all reasonable inferences from those allegations. Wisniewski, supra. We find Zlotnick's amended complaint sufficient to support a reasonable inference of actual, if indirect, reliance. 9 Defendants, on the other hand, have not made sufficient proof of either the reason for Zlotnick's decision to cover or the materiality of the price in these circumstances to entitle them to dismissal. We will therefore vacate the District Court's order dismissing the complaint and remand for further proceedings. However, unlike the plaintiff in Peil, Zlotnick is not entitled to a presumption at trial that the market price did actually pass defendants' misrepresentations on to him, or that he did actually rely on the inflated market price in making his decision to cover. We hold no more than that Zlotnick is entitled to a chance to prove such actual reliance to a finder of fact.