## Facts

- Thane International, Inc. agreed to merge with Reliant Interactive Media Corp., a public company, through a share exchange in which Reliant shareholders received a fixed ratio of Thane shares.
- In connection with the merger, Thane issued a registration statement/prospectus representing that it had applied for NASDAQ National Market listing and that listing was “approved,” subject to conditions.
- The merger closed on May 24, 2002, but Thane’s shares traded on the OTC Bulletin Board rather than the NASDAQ National Market.
- For the first 12 trading days, Thane’s stock traded roughly between $7.00 and $8.50 per share.
- After that initial period, the stock fell below $7.00 and continued declining amid poor earnings reports and other negative company-specific disclosures.
- Former Reliant shareholders brought a class action under Securities Act § 12(a)(2) and § 15, alleging the prospectus was materially misleading about NASDAQ listing.
- In a prior appeal, the Ninth Circuit held the listing statements were materially misleading as a matter of law and remanded for proceedings on loss causation and damages.
- On remand after a bench trial, the district court entered judgment for Thane, finding plaintiffs failed to prove loss causation.

## Issues

1. Whether plaintiffs pursuing § 12(a)(2) claims proved loss causation—that the misleading NASDAQ-listing statements proximately caused their economic loss rather than other market or company-specific factors.
2. How loss causation should be assessed where the alleged misstatement concerns a public fact (trading venue) observable once trading begins.

## Decision

- The Ninth Circuit affirmed the judgment for Thane.
- The court held that, despite the earlier determination that the prospectus was materially misleading, plaintiffs did not carry their burden to prove the misstatement proximately caused their losses.
- The court relied on evidence that the stock traded at or above the alleged $7 valuation for about 12 days after trading began on the OTC Bulletin Board, indicating no discernible negative price reaction tied to the listing status.
- The subsequent stock decline was attributed to poor earnings and other adverse company-specific news, and plaintiffs did not present persuasive economic proof separating any effect of the listing misstatement from those disclosures.

## Legal Principles

- A § 12(a)(2) plaintiff must show a causal connection between the material misstatement or omission and the claimed economic loss; purchase at an inflated price alone is insufficient.
- Loss causation requires proof that the misstatement was a proximate cause of the loss, typically shown by a price decline when the truth becomes known, rather than a decline driven by unrelated negative information.
- Where the allegedly concealed truth is publicly observable and the market price does not drop upon that observation, a later decline tied to independent bad news generally fails to establish loss causation.
- The plaintiff bears the burden to isolate the price impact of the corrective information from other contemporaneous drivers of price movement.

## Conclusion

The Ninth Circuit held that, although the merger prospectus was materially misleading about NASDAQ listing, the shareholder class could not recover under § 12(a)(2) without proving that the listing misstatement, rather than later negative company disclosures, proximately caused the stock-price decline and resulting loss.


Miller v. Thane Int’l, Inc., 615 F.3d 1095 (9th Cir. 2010)