When Should Investor Reliance Be Presumed in Securities Class Actions?

Abstract:     
This article discusses the reasonable reliance requirement in Section 10(b) securities class actions, and in particular, the presumption of reliance upon which many cases go forward. The author recommends that the courts and Congress re-examine this requirement in light of academic skepticism about the efficient capital market hypothesis upon which the presumption of reliance is based and recommendations from several recent high powered reports that the U.S. is losing its pre-eminence in the global markets due, in part, to uncertainties in anti-fraud securities litigation. Further, the U.S. Supreme Court has accepted certiorari in a case, In re Charter Securities Litigation, 443 F.3d 987 (8th Cir. 2006), cert. granted sub nom.w Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 2007 U.S. LEXIS 3582, which may cause the Court to reconsider the reliance requirement, especially if the Court accepts certiorari in a controversial decision on a similar issue, Regents v. the University of California v. Credit Suisse First Boston (USA), Inc., 482 F.3d 872 (5th Cir. 2007). These cases are discussed in Part IV of the article.

Keywords: securities, class action, investor, reliance, causation

JEL Classifications: K22

Accepted Paper Series