JUSTICE BREYER delivered the opinion of the Court.
A private plaintiff who claims securities fraud must prove that the defendant's fraud caused an economic loss. 109 Stat. 747, 15 U. S. C. § 78u-4(b)(4). We consider a Ninth Circuit holding that a plaintiff can satisfy this requirement — a requirement that courts call "loss causation" — simply by alleging in the complaint and subsequently establishing that "the price" of the security "on the date of purchase was inflated because of the misrepresentation." 339 F.3d 933, 938 (2003) (internal quotation marks omitted). In our view, the Ninth Circuit is wrong, both in respect to what a plaintiff must prove and in respect to what the plaintiffs' complaint here must allege.
Respondents are individuals who bought stock in Dura Pharmaceuticals, Inc., on the public securities market between April 15, 1997, and February 24, 1998. They have brought this securities fraud class action against Dura and some of its managers and directors (hereinafter Dura) in federal court. In respect to the question before us, their detailed amended (181 paragraph) complaint makes substantially the following allegations:
Most importantly, the complaint says the following (and nothing significantly more than the following) about
The District Court dismissed the complaint. In respect to the plaintiffs' drug-profitability claim, it held that the complaint failed adequately to allege an appropriate state of mind, i. e., that defendants had acted knowingly, or the like. In respect to the plaintiffs' spray device claim, it held that the complaint failed adequately to allege "loss causation."
The Court of Appeals for the Ninth Circuit reversed. In the portion of the court's decision now before us — the portion that concerns the spray device claim — the Circuit held that the complaint adequately alleged "loss causation." The Circuit wrote that "plaintiffs establish loss causation if they have shown that the price on the date of purchase was inflated because of the misrepresentation." 339 F. 3d, at 938 (emphasis in original; internal quotation marks and citation omitted). It added that "the injury occurs at the time of the transaction." Ibid. Since the complaint pleaded "that the price at the time of purchase was overstated," and it sufficiently identified the cause, its allegations were legally sufficient. Ibid.
Because the Ninth Circuit's views about loss causation differ from those of other Circuits that have considered this issue, we granted Dura's petition for certiorari. Compare ibid. with, e. g., Emergent Capital Investment Management, LLC v. Stonepath Group, Inc., 343 F.3d 189, 198 (CA2 2003); Semerenko v. Cendant Corp., 223 F.3d 165, 185 (CA3 2000); Robbins v. Koger Properties, Inc., 116 F.3d 1441, 1447-1448 (CA11 1997); cf. Bastian v. Petren Resources Corp., 892 F.2d 680, 685 (CA7 1990). We now reverse.
Private federal securities fraud actions are based upon federal securities statutes and their implementing regulations. Section 10(b) of the Securities Exchange Act of 1934 forbids (1) the "use or employ[ment] . . . of any . . . deceptive device," (2) "in connection with the purchase or sale of any security," and (3) "in contravention of" Securities and Exchange Commission "rules and regulations." 15 U. S. C. § 78j(b). Commission Rule 10b-5 forbids, among other things, the making of any "untrue statement of a material fact" or the omission of any material fact "necessary in order to make the statements made . . . not misleading." 17 CFR § 240.10b-5 (2004).
The courts have implied from these statutes and Rule a private damages action, which resembles, but is not identical to, common-law tort actions for deceit and misrepresentation. See, e. g., Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 730, 744 (1975); Ernst & Ernst v. Hochfelder, 425 U.S. 185, 196 (1976). And Congress has imposed statutory requirements on that private action. E. g., 15 U. S. C. § 78u-4(b)(4).
In cases involving publicly traded securities and purchases or sales in public securities markets, the action's basic elements include:
Dura argues that the complaint's allegations are inadequate in respect to these last two elements.
We begin with the Ninth Circuit's basic reason for finding the complaint adequate, namely, that at the end of the day plaintiffs need only "establish," i. e., prove, that "the price on the date of purchase was inflated because of the misrepresentation." 339 F. 3d, at 938 (internal quotation marks and citation omitted). In our view, this statement of the law is wrong. Normally, in cases such as this one (i. e., fraud-on-the-market cases), an inflated purchase price will not itself constitute or proximately cause the relevant economic loss.
For one thing, as a matter of pure logic, at the moment the transaction takes place, the plaintiff has suffered no loss; the inflated purchase payment is offset by ownership of a share that at that instant possesses equivalent value. Moreover, the logical link between the inflated share purchase price and any later economic loss is not invariably strong. Shares are normally purchased with an eye toward a later sale. But if, say, the purchaser sells the shares quickly before the relevant truth begins to leak out, the misrepresentation will not have led to any loss. If the purchaser sells later after the truth makes its way into the marketplace, an initially inflated purchase price might mean a later loss. But that is far from inevitably so. When the
Given the tangle of factors affecting price, the most logic alone permits us to say is that the higher purchase price will sometimes play a role in bringing about a future loss. It may prove to be a necessary condition of any such loss, and in that sense one might say that the inflated purchase price suggests that the misrepresentation (using language the Ninth Circuit used) "touches upon" a later economic loss. Ibid. But, even if that is so, it is insufficient. To "touch upon" a loss is not to cause a loss, and it is the latter that the law requires. 15 U. S. C. § 78u-4(b)(4).
For another thing, the Ninth Circuit's holding lacks support in precedent. Judicially implied private securities fraud actions resemble in many (but not all) respects common-law deceit and misrepresentation actions. See Blue Chip Stamps, supra, at 744; see also L. Loss & J. Seligman, Fundamentals of Securities Regulation 910-918 (5th ed. 2004) (describing relationship to common-law deceit). The common law of deceit subjects a person who "fraudulently" makes a "misrepresentation" to liability "for pecuniary loss caused" to one who justifiably relies upon that misrepresentation. Restatement (Second) of Torts § 525, p. 55 (1976) (hereinafter Restatement of Torts); see also Southern Development Co. v. Silva, 125 U.S. 247, 250 (1888) (setting forth elements of fraudulent misrepresentation). And the common law has long insisted that a plaintiff in such a case show
Given the common-law roots of the securities fraud action (and the common-law requirement that a plaintiff show actual damages), it is not surprising that other Courts of Appeals have rejected the Ninth Circuit's "inflated purchase price" approach to proving causation and loss. See, e. g., Emergent Capital, 343 F. 3d, at 198 (inflation of purchase price alone cannot satisfy loss causation); Semerenko, 223 F. 3d, at 185 (same); Robbins, 116 F. 3d, at 1448 (same); cf. Bastian, 892 F. 2d, at 685. Indeed, the Restatement of Torts, in setting forth the judicial consensus, says that a person who "misrepresents the financial condition of a corporation in order to sell its stock" becomes liable to a relying purchaser "for the loss" the purchaser sustains "when the facts . . . become generally known" and "as a result" share value "depreciate[s]." § 548A, Comment b, at 107. Treatise writers, too, have emphasized the need to prove proximate causation. Prosser and Keeton § 110, at 767 (losses do "not
We cannot reconcile the Ninth Circuit's "inflated purchase price" approach with these views of other courts. And the uniqueness of its perspective argues against the validity of its approach in a case like this one where we consider the contours of a judicially implied cause of action with roots in the common law.
Finally, the Ninth Circuit's approach overlooks an important securities law objective. The securities statutes seek to maintain public confidence in the marketplace. See United States v. O'Hagan, 521 U.S. 642, 658 (1997). They do so by deterring fraud, in part, through the availability of private securities fraud actions. Randall v. Loftsgaarden, 478 U.S. 647, 664 (1986). But the statutes make these latter actions available, not to provide investors with broad insurance against market losses, but to protect them against those economic losses that misrepresentations actually cause. Cf. Basic, 485 U. S., at 252 (White, J., joined by O'CONNOR, J., concurring in part and dissenting in part) ("[A]llowing recovery in the face of affirmative evidence of nonreliance — would effectively convert Rule 10b-5 into a scheme of investor's insurance. There is no support in the Securities Exchange Act, the Rule, or our cases for such a result" (internal quotation marks and citations omitted)).
The statutory provision at issue here and the paragraphs that precede it emphasize this last mentioned objective. Private Securities Litigation Reform Act of 1995, 109 Stat. 737. The statute insists that securities fraud complaints "specify" each misleading statement; that they set forth the facts "on which [a] belief" that a statement is misleading was "formed"; and that they "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind." 15 U. S. C. §§ 78u-4(b)(1), (2). And the statute expressly imposes on plaintiffs "the burden of proving" that the defendant's misrepresentations
The statute thereby makes clear Congress' intent to permit private securities fraud actions for recovery where, but only where, plaintiffs adequately allege and prove the traditional elements of causation and loss. By way of contrast, the Ninth Circuit's approach would allow recovery where a misrepresentation leads to an inflated purchase price but nonetheless does not proximately cause any economic loss. That is to say, it would permit recovery where these two traditional elements in fact are missing.
In sum, we find the Ninth Circuit's approach inconsistent with the law's requirement that a plaintiff prove that the defendant's misrepresentation (or other fraudulent conduct) proximately caused the plaintiff's economic loss. We need not, and do not, consider other proximate cause or loss-related questions.
Our holding about plaintiffs' need to prove proximate causation and economic loss leads us also to conclude that the plaintiffs' complaint here failed adequately to allege these requirements. We concede that the Federal Rules of Civil Procedure require only "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. Rule Civ. Proc. 8(a)(2). And we assume, at least for argument's sake, that neither the Rules nor the securities statutes impose any special further requirement in respect to the pleading of proximate causation or economic loss. But, even so, the "short and plain statement" must provide the defendant with "fair notice of what the plaintiff's claim is and the grounds upon which it rests." Conley v. Gibson, 355 U.S. 41, 47 (1957). The complaint before us fails this simple test.
As we have pointed out, the plaintiffs' lengthy complaint contains only one statement that we can fairly read as describing the loss caused by the defendants' "spray device"
For reasons set forth in Part II-A, supra, however, the "artificially inflated purchase price" is not itself a relevant economic loss. And the complaint nowhere else provides the defendants with notice of what the relevant economic loss might be or of what the causal connection might be between that loss and the misrepresentation concerning Dura's "spray device."
We concede that ordinary pleading rules are not meant to impose a great burden upon a plaintiff. Swierkiewicz v. Sorema N. A., 534 U.S. 506, 513-515 (2002). But it should not prove burdensome for a plaintiff who has suffered an economic loss to provide a defendant with some indication of the loss and the causal connection that the plaintiff has in mind. At the same time, allowing a plaintiff to forgo giving any indication of the economic loss and proximate cause that the plaintiff has in mind would bring about harm of the very sort the statutes seek to avoid. Cf. H. R. Conf. Rep. No. 104-369, p. 31 (1995) (criticizing "abusive" practices including "the routine filing of lawsuits . . . with only [a] faint hope that the discovery process might lead eventually to some plausible cause of action"). It would permit a plaintiff "with a largely groundless claim to simply take up the time of a number of other people, with the right to do so representing an in terrorem increment of the settlement value, rather than a reasonably founded hope that the [discovery] process will reveal relevant evidence." Blue Chip Stamps, 421 U. S., at 741. Such a rule would tend to transform a private
For these reasons, we find the plaintiffs' complaint legally insufficient. We reverse the judgment of the Ninth Circuit, and we remand the case for further proceedings consistent with this opinion.
It is so ordered.
Briefs of amici curiae urging affirmance were filed for the New Jersey Dept. of Treasury et al. by Melvyn I. Weiss; for the City of New York Pension Funds et al. by Jay W. Eisenhofer, Geoffrey C. Jarvis, Leonard J. Koerner, Peter H. Mixon, David L. Muir, and Christopher W. Waddell; for the National Association of Shareholder and Consumer Attorneys et al. by Kevin P. Roddy, Deborah M. Zuckerman, and Michael Schuster; for the North American Securities Administrators Association, Inc., by Mark J. Davis; for the Regents of the University of California by James E. Holst and Christopher M. Patti; and for James J. Hayes by Edward M. Selfe.