Losses Caused By Market Forces Must Be Excluded From Calculation Of Securities Fraud Losses

United States v. Rutkoske, Docket No. 06-4067-cr (2d Cir. Oct. 25, 2007) (found here)

Rutkoske had the general guts to challenge the Government's loss calculation, which the district court accepted for purposes of sentencing.  And he won based on a very simple principle: A defendant can only be held accountable for the losses that he caused; he cannot be held accountable for "[l]osses from causes other than the fraud," which "must be excluded from the loss calculation."  As the Second Circuit held, the "District Court's basic failure at least to approximate the amount of the loss caused by the fraud without even considering other factors relevant to a decline in [] share price requires a remand to redetermine the amount of the loss . . . ." 

Significantly for those of us whose practice frequently involves charges of securities fraud, the Second Circuit noted that these principles apply even to thinly traded stocks, like those upon which Rutkoske's conviction were based.