Controversial Orthodoxy: The Efficient Capital Markets Hypothesis And Loss Causation
AbstractSince the Supreme Court's landmark holding in Basic, Inc. v. Levinson, courts have incorporated the efficient capital markets hypothesis as an analytical tool in securities fraud cases. Nevertheless, recent turmoil in the financial markets and a growing chorus of scholarship challenging traditional notions of market efficiency have caused some courts to reconsider the role of the efficient capital markets hypothesis in securities fraud litigation. This Note analyzes a question that has split the circuits and marks the intersection of market efficiency and securities fraud: how quickly must an equity security depreciate in price following the publication of a corrective disclosure for a plaintiff to plead and prove loss causation? Part I introduces the efficient capital markets hypothesis, securities fraud actions, and the ways in which courts have traditionally employed concepts of market efficiency into their analyses. Part II analyzes the circuit split regarding the speed with which the market must incorporate information into price for a plaintiff to properly plead and prove loss causation. Finally, Part III argues that courts should resist the temptation to draw bright-line rules in the context of loss causation and should engage each case on its facts by analyzing the efficiency of the relevant market during each event giving rise to the fraud and economic loss.INTRODUCTION 192I. ECONOMIC AND LEGAL BACKGROUND 193A. THE EFFICIENT CAPITAL MARKETS HYPOTHESIS 193B. SECTION 10(B) SECURITIES FRAUD 196C. ELEMENTS OF RULE 10B-5 IN AN EFFICIENT CAPITAL MARKET 2001. Materiality 2002. Reliance 2013. Loss Causation 203II. THE CIRCUIT SPLIT 205A. IMMEDIATE DEPRECIATION REQUIRED 205B. IMMEDIATE DEPRECIATION NOT REQUIRED 211III. COURTS SHOULD FOLLOW THE FIFTH CIRCUIT'S DECISION IN LORMAND 215A. CONTEMPORARY CRITICISM OF THE EFFICIENT CAPITAL MARKETS HYPOTHESIS 216B. TEMPORALLY ACCURATE AND INDIVIDUAL ANALYSIS OF EACH 10B-5 ELEMENT 218C. CONSISTENCY WITH LANDMARK RULE 10B-5 CASES 223D. ARGUMENTS IN FAVOR OF A BRIGHT-LINE RULE 225CONCLUSION 230INTRODUCTIONThere is an old joke, widely told among economists, about an economist strolling down the street with a companion when they come upon a $100 bill [layingl on the ground. As the companion reaches down to pick it up, the economist says "Don't bother- if it were a real $100 bill, someone would have already picked it up."1This joke is representative of a widely endorsed economic theory - the efficient capital markets hypothesis ("ECMH") - taken to its logical extreme.2 Developed in its contemporary form by the Chicago School of Economics, the ECMH posits that in "efficient" markets, the prices of securities accurately reflect all publicly available information.3 Over the course of the last four decades, the ECMH has had a monumental influence on securities litigation, particularly in the context of Rule 10b5 securities fraud.4 This Note examines a question that has split the circuits: how quickly must an equity security depreciate in price following the release of a corrective disclosure for a plaintiff to prove the element of loss causation? Part I provides a brief explanation of the ECMH, Rule 10b-5, and the ways in which at least three elements of Rule 10b-5 have been shaped by judicial endorsement of the ECMH. Part II examines the circuit split regarding this issue and discusses recent case law addressing the rapid incorporation of information into securities prices. Part III takes the position that courts should adopt a fact-specific rule with respect to loss causation and resist the temptation to apply any bright-line rule based on the ECMH. …
Did the Private Securities Litigation Reform Act Work
In 1995 Congress passed the Private Securities Litigation Reform Act to address abuses in securities fraud class actions. In the wake of Enron, WorldCom, Adelphia, and other high profile securities frauds, critics suggest that the law made it too easy to escape liability for securities fraud and thus created a climate in which frauds are more likely to occur. Others claim that the Act has largely failed because it did little to deter plaintiff's lawyers from filing non-meritorious cases. This article employs a database of the 1,449 class actions filed from 1996 through 2001 to explore whether the Act achieved several of its primary goals - discouraging the filing of non-meritorious suits, reducing litigation risk for high technology issuers, and reducing the "race to the courthouse," whereby class actions were filed soon after significant stock price declines, apparently with very little pre-filing investigation. The picture that emerges from studying these data is that the PSLRA did not work as intended. This article demonstrates that as many or more class actions are filed after the Act as before. High technology issuers remain at significantly greater risk than issuers in other industries. There is statistically significant evidence, however, that suggests that the Act improved overall case quality at least in the circuit that most strictly interprets one of the Act's key provisions, a heightened pleading standard. The data in the article also demonstrate that Congress did not achieve its goal of increasing the filing delay in class actions. Actions are filed as quickly now as they were before passage of the Act. Nonetheless, that too may provide indirect evidence that plaintiff's attorneys are selecting more apparent cases of fraud that require less pre-filing investigation.
The Problems and Opportunities in Developing International Business Programs
This paper discusses the results of a survey conducted among AACSB member schools. The survey dealt with two major topical areas. These were (a) what types of International Business programs currently exist in AACSB Schools, and (b) problems associated with these programs. The paper also suggests countries that offer opportunities to Colleges of Business to pursue countty-specific programs.