Limiting Rule 10b-5 Damages Claims


The authors focus on three often overlooked or underestimated approaches to adjusting damages in Rule 10b-5 claims.

After a Rule 10b-5 securities class action settles or, rarely, reaches a verdict, a process begins to administer the funds to class members. This usually involves several adjustments to the typical damages calculation.

Damages arise from “inflation,” the difference between the actual stock price and what the price would have been absent the alleged fraud. The adjustments applied in the administration process can reduce individual class members’ claims as well as plaintiffs’ estimates of claimed aggregate, or classwide, damages. The end results after these
adjustments are “recognized losses or claims.”

This article, originally published in 2014, focuses on three approaches to adjusting damages:

  1. Offsetting recognized losses with gains from price inflation caused by the alleged fraud
  2. Adjusting recognized losses with nominal gains
  3. Limiting per-share recognized losses to nominal losses

These adjustments can be quite large and may often be underestimated or overlooked by defendants. Their size in Apollo, for example, was one reason that the case settled despite the existence of a non-appealable judgment.

The views expressed herein do not necessarily represent the views of Cornerstone Research.

Limiting Rule 10b-5 Damages Claims


  • Los Angeles

Catherine J. Galley

Senior Vice President

  • Los Angeles

Erin E. McGlogan

Senior Director, Practice Area Development