Taking a More Sophisticated Approach to Market Efficiency: How Securities Analyst Reports can be used to Establish Loss Causation in a Federal Securities Fraud Action
Securities Regulation Law Journal, Vol. 38, No. 1, pp. 57-63
7 Pages Posted: 9 Oct 2009 Last revised: 18 Oct 2010
In the newly evolving case law of what constitutes a corrective disclosure, a recent U.S. District Court for the District of Arizona decision in In re Apollo Group, Inc. Securities Litigation has brought to the fore the issue of whether or not corrective disclosures must come only in the form of “hard facts,” such as the public disclosure of prospective accounting restatements or the failure of the FDA to approve a drug for public use, or if they can also come in the form of “soft facts,” i.e., a public disclosure of how a securities analyst has changed her opinion or valuation of a security based on the incorporation of hard facts into her analysis or valuation model(s). Such a change in an analyst’s opinion will typically be communicated to the market by the public release of a written research report. In this essay, it is argued that corrective disclosures must also include the later in order to be consistent with a correct understanding of how the mechanisms of an efficient financial market operate. If not, many investors who have been the victim of securities fraud will go uncompensated.
Keywords: securities law, securities regulation, loss causation
JEL Classification: K22
Suggested Citation: Suggested Citation