Securities Fraud Damages.

Byline: Mass. Lawyers Weekly Staff

Where a plaintiff who filed a securities fraud complaint has moved in limine seeking a determination of the legal standard to be applied to the issue of damages on his common-law fraud claim, the measure of damages should be based on the provisions of the Restatement (Second) of Torts 549.

"This dispute involves a claim of fraud arising out of a sale of shares in Kensho Technologies Inc., an analytics and machine learning company.

"The complaint does not assert a claim for breach of contract. Instead, it asserts a tort claim for fraud (or intentional misrepresentation) and a claim for reformation of the contract based on mistake. The question presented here is the proper measure of damages on the tort claim.

"Here, the issue is whether plaintiff is limited to the recovery of only lost-value damages (that is, the difference between the price of the shares as represented and their actual value), or whether he can also recover lost-expectation damages (that is, lost profits from the sale of additional shares that he says he was entitled to receive).

"Section 549 of the Restatement (Second) of Torts generally permits the recovery of both types of damages.

"This matter involves an allegedly fraudulent misrepresentation in a business transaction based upon a contract. Accordingly, if 549 applies, it appears that plaintiff could recover lost-value damages under section (1)(a) (that is, the difference between the price he paid for the shares and what they were worth on a fully diluted basis)...