While it is commonly recognized that the Supreme Court’s ruling in Dura had an effect on the analysis of loss causation in securities fraud cases, it is less recognized that the Dura decision should, and has, had an impact on the analysis of damages. The need for an adjustment to the measurement of damages has been addressed in various ways by experts and the courts, most recently with a ruling in Williams Communications Group Securities Litigation finding that one common method (the “index method”) of estimating damages, if applied without adjustment, “collides directly with loss causation doctrine” and that another common method (the “iconstant percent method”), with an inadequate adjustment, creates damages with properties for which even the expert proffering the methodology could provide “no ‘economic or logical reason’” and also impermissibly provides investors with a “partial downside insurance policy.”

In this working paper, NERA Senior Vice President Dr. David Tabak, who served as an expert for certain defendants in the Williams Communications Group matter, addresses the type of adjustments to certain damages models necessary to comport with the loss causation doctrine in Dura in a consistent and logical fashion. Dr. Tabak notes how the arguments that were persuasive in the Williams Communications Group litigation can be used to show how many common methods of estimating damages need to be adjusted if they are to create logical results consistent with the Supreme Court's ruling. He also notes that the failure to make these adjustments will result in unreliable and upwardly biased estimates of damages.

Learn more about Dr. Tabak’s role in In Re Williams Securities Litigation.