Recalculating 'Loss' in Securities Fraud

3 Harvard Business Law Review 257, 2013

22 Pages Posted: 24 Oct 2013

Date Written: October 2013


Quantifying the amount of actual loss within securities fraud cases is crucial to criminal sentencing. The United States Sentencing Guidelines recently adopted a "modified rescissory method," whereby loss is measured by comparing average stock prices during and after the fraud. This paper argues that the Guidelines imprudently opt for ease of judicial application over precise culpability. The new law’s arithmetic suffers from a number of serious flaws, including upward bias with respect to the number of damaged shares and skewed sentencing disparity (both upward and downward) due to the inclusion of extrinsic factors wholly unrelated to a defendant’s conduct. This paper instead proposes conforming criminal sentencing for securities fraud with its civil counterpart, as promulgated by the Supreme Court in Dura Pharmaceuticals, Inc. v. Broudo. A "market-adjusted method," which focuses on normalized change in a damaged security’s value, is a more precise way to calculate actual loss. And such precision need not come at the expense of ease of application.

Keywords: Securities, fraud, white collar, criminal sentencing, loss, Dura, Broudo

JEL Classification: K14, K22, K40, K42

Suggested Citation

Duncan, Scotland M., Recalculating 'Loss' in Securities Fraud (October 2013). 3 Harvard Business Law Review 257, 2013. Available at SSRN:

Scotland M. Duncan (Contact Author)

Independent ( email )

No Address Available

Register to save articles to
your library


Paper statistics

Abstract Views
PlumX Metrics