Reputational Damages in Securities Litigation

Abstract:     
This short paper, originating in remarks made at the Institute for Law and Economic Policy's 15th Annual Conference on Compensation of Plaintiffs in Mass Securities Litigation, addresses an issue that has surfaced post-Dura Pharmaceuticals: can investors recover damages resulting from declines in stock price attributable to the market's reassessment of the integrity of management or the corporation's internal controls? Some finance scholars label these damages as non-recoverable 'collateral damage' that are not attributable to the original fraudulent disclosure. I argue that this position is based on a mischaracterization of the original fraudulent disclosure and that there is no basis in law or policy for denying plaintiffs recovery for what are properly considered as reputational damages.

Keywords: damages, loss causation, securities fraud, securities class action

Accepted Paper Series