Question

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.

True/False:

1. Because Dura Pharmaceuticals, Inc. is traded on a national security exchange, it

must comply in an ongoing manner with the requirements of the Securities

Exchange Act of 1934 and the Sarbanes Oxley Act of 2002.

2. If Dura’s officers carelessly made erroneous statements concerning its profits and

the pending approval of the new asthmatic spray device in 10-K, 8-K, or proxy

solicitation materials, they are liable for damages caused by their

misrepresentations under Sections 10(b) and 18 of 1934 Act.

3. Under Rule 10b-5, Dura and its officers are responsible for damages caused by

misstatements of material facts regarding its earnings forecast and the FDA

approval of the asthmatic spray device if they knowingly and intentionally made

the misstatements.

4. If Dura’s officers were aware of the company’s failure to achieve its projected

earnings and sold Dura Stock in advance of their announcement on February 24,

1998, they would be guilty of violating Section 16 of the 1934 Act.

5. If Dura and its officers carelessly made erroneous forward-looking statements

about Dura’s earnings and FDA approval of the asthmatic spray device in a

prospectus, they can be held liable under the 1933 Securities Act and PSLRA for

issuing erroneous forward looking statements.

Answer 1

1. Because Dura Pharmaceuticals, Inc. is traded on a national security exchange, it

must comply in an ongoing manner with the requirements of the Securities

Exchange Act of 1934 and the Sarbanes Oxley Act of 2002.-True (Ans)

2. If Dura’s officers carelessly made erroneous statements concerning its profits and

the pending approval of the new asthmatic spray device in 10-K, 8-K, or proxy

solicitation materials, they are liable for damages caused by their

misrepresentations under Sections 10(b) and 18 of 1934 Act.-True (Ans)

3. Under Rule 10b-5, Dura and its officers are responsible for damages caused by

misstatements of material facts regarding its earnings forecast and the FDA

approval of the asthmatic spray device if they knowingly and intentionally made

the misstatements.-True (Ans)

4. If Dura’s officers were aware of the company’s failure to achieve its projected

earnings and sold Dura Stock in advance of their announcement on February 24,

1998, they would be guilty of violating Section 16 of the 1934 Act.-True (Ans)

5. If Dura and its officers carelessly made erroneous forward-looking statements

about Dura’s earnings and FDA approval of the asthmatic spray device in a

prospectus, they can be held liable under the 1933 Securities Act and PSLRA for

issuing erroneous forward looking statements.-True (Ans)