The US Court of Appeals for the Fifth Circuit recently held that multiple partial “corrective” disclosures collectively may satisfy the requirements of pleading loss causation in a securities fraud class action, even if no single disclosure alone is sufficient. 

Investors alleged that Amedisys, Inc., a publicly traded corporation that provides home health services to patients with chronic health problems, violated §10(b) of the Securities Exchange Act of 1934 by concealing a Medicare billing fraud scheme. According to the complaint, Amedisys employees allegedly provided medically unnecessary treatment visits to patients in order to hit the most lucrative Medicare reimbursement thresholds. 

Plaintiffs alleged that the fraud was eventually revealed to the market through a series of five partial disclosures between August 2008 and July 2010. The five disclosures were: (i) an analyst report speculating on the possibility of fraud at Amedisys; (ii) the resignation of two senior Amedisys executives; (iii) a Wall Street Journal article analyzing Amedisys’ patient visit data; (iv) the announcement of government investigations; and (v) disappointing quarterly earnings results. As a result of these disclosures, plaintiffs argued that “the truth gradually leaked into the market” and caused a 60 percent decline in Amedisys’ stock price. 

Amedisys argued that none of the disclosures standing alone were sufficient to establish loss causation. The Fifth Circuit, however, found that the disclosures should not be analyzed in isolation and that the disclosures “collectively constitute and culminate in a corrective disclosure that adequately pleads loss causation.” The court explained that, with respect to loss causation, its “holding can best be understood by observing that the whole is greater than the sum of its parts.” 

Public Emps. Ret. Sys. of Miss. v. Amedisys, Inc., No. 13-30580 (5th Cir. Oct. 2, 2014).