Toward a Unified Theory of Materiality in Securities Law

65 Pages Posted: 10 May 2017 Last revised: 4 Mar 2018

See all articles by Kurt S. Schulzke

Kurt S. Schulzke

University of North Georgia

Gerlinde Berger-Walliser

University of Connecticut

Date Written: February 9, 2017


Regulatory efforts in the United States and European Union have recently refocused on materiality, an essential but elusive securities law concept. The renewed focus is due in part to increasing globalization of capital markets, data, and information channels that has highlighted inconsistencies in theory and application. In the United States, the Supreme Court has loosely defined materiality through a line of cases beginning with TSC Industries v. Northway and Basic, Inc. v. Levinson, whose reasonable investor rubric is frequently disregarded by lower courts, prosecutors, and the Securities and Exchange Commission. Meanwhile, in the E.U., courts have only lightly addressed materiality. Scholars in law and behavioral economics have criticized the TSC-Basic rubric for its ambiguity, unpredictability, and disconnection from market psychology. Recognizing these criticisms, this Article conducts an international comparative investigation of materiality in the legislation, regulation, and case law of the United States and European Union, revealing a shared, probabilistic Bayesian infrastructure. The Article then proposes a flexible Bayesian frame-work that harmonizes the substantive evaluation of materiality under existing U.S. and E.U. law. Finally, it models application of the framework using Bayesian network analysis in the context of a hypothetical stock transaction.

Keywords: Materiality, Securities Law, Bayesian Networks, Market Abuse Regulation

JEL Classification: K22, M41, K33, C11

Suggested Citation

Schulzke, Kurt S. and Berger-Walliser, Gerlinde, Toward a Unified Theory of Materiality in Securities Law (February 9, 2017). 56 Colum. J. Transnat’l L. 6 (2017), University of Connecticut School of Business Research Paper No. 17-04, Available at SSRN:

Kurt S. Schulzke (Contact Author)

University of North Georgia ( email )


Gerlinde Berger-Walliser

University of Connecticut ( email )

368 Fairfield Road
Storrs, CT 06269-2041
United States

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