Legal Definitions - transaction causation

Definition:Transaction causation refers to the fact that an investor would not have engaged in a given transaction if the other party had made truthful statements at the required time.

Example: Let's say that a company is planning to issue new shares of stock. The company's CEO knows that the company is in financial trouble and that the stock is likely to lose value. However, the CEO does not disclose this information to potential investors. An investor buys the stock, but later finds out about the company's financial troubles and suffers losses as a result. In this case, the investor could argue that transaction causation exists because they would not have bought the stock if the CEO had made truthful statements.

This example illustrates how transaction causation can be used as a defense in securities cases. If an investor can prove that they would not have engaged in a transaction if the other party had made truthful statements, they may be able to recover damages.