Question: Michael Broudo and other investors purchased stock in Dura Pharmaceuticals
Michael Broudo and other investors purchased stock in Dura Pharmaceuticals, Inc., on the public securities market between April 15, 1997, and February 24, 1998. During this period, they allege that Dura or its officers made false statements concerning both Dura's drug profits and future Food and Drug Administration approval of a new asthmatic spray device. They also allege that Dura falsely claimed that it expected that its drug sales would prove profitable. Regarding the asthmatic spray device, they allege Dura falsely claimed that it expected the FDA would soon grant its approval. On February 24, 1998, Dura announced that its earnings would be lower than expected, principally due to slow drug sales. The next day Dura's shares lost almost half their value falling from about $39 per share to about $21. Eight months later in November 1998, Dura announced that the FDA would not approve Dura's new asthmatic spray device. Soon after, Broudo and the other investors sued Dura and its officers under Rule 10b-5 of the Securities Exchange Act of 1934. In their complaint, they stated that in reliance on the integrity of the market, they paid artificially inflated prices for Dura securities and suffered damages. They did not specify or attempt to calculate the amount of damages caused by the alleged misstatements made by Dura. Dura defended on the grounds that Broudo and the other investors failed adequately to allege loss causation. Did the U.S. Supreme Court agree with Dura?
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