Loos v. Immersion Corp.

In a securities fraud claim, the mere announcement by a company of an internal investigation is not sufficient to establish the element of loss causation

Plaintiff John Loos (“Loos”) is one of many shareholders owning stock in Immersion Corporation (“Immersion”). Immersion sustained many losses resulting in a depreciation of its stock value and announced it was conducting an internal investigation. Following the announcement, Loos’ and other shareholders’ filed a consolidated complaint alleging securities fraud. The district court allowed Loos to amend his complaint because he failed to state a claim in his original complaint. However, the district court subsequently dismissed Loos’ complaint because he failed to make the necessary changes to it. The court stated that Loos needed to “prove that [Immersion’s] misrepresentation was a ‘substantial cause’ of his financial loss,” which he failed to do. Loos appealed of the district court’s dismissal. On appeal, the panel addressed whether Loos sufficiently alleged loss causation in the complaint. It stated, “loss causation refers to the causal relationship between a material misrepresentation and the economic loss suffered by an investor.” Relying on this rule, the panel held that the announcement of an investigation, standing alone, is insufficient to establish loss causation. Here, since Loos only alleged that his losses were caused by the internal investigation he did not establish loss causation. AFFIRMED.