The German Capital Markets Model Case Act (KapMuG) - A European Role Model For Increasing the Efficiency of Capital Markets? Analysis and Suggestions for Reform

35 Pages Posted: 1 Oct 2010 Last revised: 21 Mar 2012

See all articles by Axel Halfmeier

Axel Halfmeier

Leuphana Universität Lüneburg

Eberhard Feess

Frankfurt School of Finance & Management gemeinnützige GmbH

Date Written: January 30, 2012

Abstract

We analyze the German Capital Markets Model Case Law (KapMuG") enacted to reduce transaction costs in securities mass litigation. The KapMuG is often seen as a European role model trying to enhance investor rights without running the risk of frivolous claims known from US class actions. We show that the current legislation is insufficient due to two main obstacles: First, shareholders need to file individual law-suits before being eligible for participation in the model case which leads to a rational ignorance of small shareholders. Second, for wrong and omitted capital market information beyond prospectus liability, it is unclear if shareholders need to prove the causal link between the wrong information and the investment decision, which is hardly possible. We suggest two major changes for the reform due in November 2012: a simplified opt-in mechanism without the prerequisite of individual law-suits, and extending the reversal of the burden of proof for causation from prospectus liability to wrong or omitted ad hoc information. Besides, we argue that gross negligence is the appropriate liability rule in the substantive law underlying the KapMuG.

Keywords: Shareholder mass litigation, securities litigation, KapMuG, standard of proof

JEL Classification: K22, K41, G18

Suggested Citation

Halfmeier, Axel and Feess, Eberhard, The German Capital Markets Model Case Act (KapMuG) - A European Role Model For Increasing the Efficiency of Capital Markets? Analysis and Suggestions for Reform (January 30, 2012). Available at SSRN: https://ssrn.com/abstract=1684528 or http://dx.doi.org/10.2139/ssrn.1684528

Axel Halfmeier

Leuphana Universität Lüneburg ( email )

Scharnhorststraße 1
Lüneburg, 21335
Germany

Eberhard Feess (Contact Author)

Frankfurt School of Finance & Management gemeinnützige GmbH ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

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