Fraud on Any Market

48 Pages Posted: 8 Jul 2021 Last revised: 3 Mar 2022

See all articles by Greg Day

Greg Day

University of Georgia - C. Herman and Mary Virginia Terry College of Business; Yale University - Yale Information Society Project

John T. Holden

Oklahoma State University

Brian Mills

University of Texas at Austin

Date Written: June 22, 2021


Claims of securities fraud had historically failed because investors seldom rely on false or misleading statements when transacting securities. To bolster confidence in securities markets, the U.S. Supreme Court adopted a doctrine called “fraud-on-the-market” so that duped investors can show detrimental reliance without ever coming into contact with the fraudulent statements. The doctrine assumes that a stock’s price reflects all material information, meaning that an investor who bought tainted stock has constructively relied on the fraud.

Fraud-on-the-market is not only unavailable in other markets, but it is embattled within securities law. The doctrine has endured volleys of criticisms about whether markets actually absorb information, leading critics to believe that the Supreme Court would eliminate it in 2014. The Court did not. In light of persistent questions about whether the doctrine reflects reality or outlived its purpose, our empirical research tests fraud-on-the-market’s viability by investigating sports gambling: we find that the doctrine provides a sound remedy for investors in any market.

The sports wagering market operates like others where defrauded individuals have historically failed to support their fraud claims due to a lack of reliance. We show that securities and gambling markets suffer from the many of the same frailties. Chief among them is that both investors and bettors place money in markets where they lack information about deception, cheating, and fraud. And like how investors rely on prices affected by fraud, gamblers reference wagering information stemming from the playing field: if deception enables a team to fare better or worse, this skews the betting lines on which gamblers rely. The difference between these markets, though, is that investors enjoy a body of securities law to condemn fraud.

We argue that fraud-on-the-market would benefit most types of investable markets like sports gambling as well as supporting the doctrine in the securities context. Despite criticisms of the doctrine, our analysis shows that fraud creates the presumption of distorted prices. Second, the money wagered via sports betting and daily fantasy sports (“DFS”) would generate such damages that leagues would better maintain a competitive environment, boosting sports integrity akin to how securities regulations provides market protections. Also, our argument recognizes the inequity of denying sports bettors and DFS users a remedy. Whereas the leagues had traditionally benefited from gambling indirectly, today, the NFL, NHL, MLB, and NBA have partnered with DFS and other gambling industry companies. Since the leagues benefit directly from gambling, and lucratively so, they should owe their fans a truly competitive landscape.

JEL Classification: K2, K21, K23, K3, L12, L13, L4, L40, L41, L43, L44, L5, L83, Z2, Z23, Z28

Suggested Citation

Day, Gregory and Holden, John and Mills, Brian, Fraud on Any Market (June 22, 2021). 97 Indiana Law Journal 659 (2022), Available at SSRN:

Gregory Day

University of Georgia - C. Herman and Mary Virginia Terry College of Business ( email )

Brooks Hall
Athens, GA 30602-6254
United States

Yale University - Yale Information Society Project ( email )

127 Wall Street
New Haven, CT 06511
United States

John Holden (Contact Author)

Oklahoma State University ( email )

464 Business Building
Stillwater, OK 74078-0555
United States

Brian Mills

University of Texas at Austin ( email )

2317 Speedway
Austin, TX Texas 78712
United States

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