The 'Reasonable Investor' of Federal Securities Law: Insights from Tort Law's 'Reasonable Person' & Suggested Reforms

Journal of Corporation Law, Vol. 43 (2017 Forthcoming)

Vanderbilt Law Research Paper No. 17-05

65 Pages Posted: 22 Sep 2016

See all articles by Amanda M. Rose

Amanda M. Rose

Vanderbilt University - Law School

Date Written: August 9, 2016

Abstract

Federal securities law defines the materiality of corporate disclosures by reference to the views of a hypothetical “reasonable investor.” For decades the reasonable investor standard has been a flashpoint for debate — with critics complaining of the uncertainty it generates and defenders warning of the under-inclusiveness of bright-line alternatives. This Article attempts to shed fresh light on the issue by considering how the reasonable investor differs from its common law antecedent, the reasonable person of tort law. The differences identified suggest that the reasonable investor standard is more costly than tort law’s reasonable person standard — the uncertainty it generates is both greater and more pernicious. But the analysis also reveals promising ways to mitigate these costs while retaining the benefits of the flexible standard.

Keywords: class actions, certification, materiality, securities fraud, Omnicare, reasonable investor, jury trial, tort, reasonable person, Rule 10b-5, Section 11

Suggested Citation

Rose, Amanda M., The 'Reasonable Investor' of Federal Securities Law: Insights from Tort Law's 'Reasonable Person' & Suggested Reforms (August 9, 2016). Journal of Corporation Law, Vol. 43 (2017 Forthcoming); Vanderbilt Law Research Paper No. 17-05. Available at SSRN: https://ssrn.com/abstract=2840993

Amanda M. Rose (Contact Author)

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States

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