Title: Form vs. Function in Rule 10B-5 Class Actions
Abstract: The Supreme Court’s widely anticipated decision last term in Halliburton Co. v. Erica P. John Fund, Inc. did little to change the fundamental landscape of securities fraud litigation in the United States. Rule 10b-5 class actions premised on the “fraud-on-themarket” presumption of reliance may still be brought, although it is now clear that defendants may present evidence of lack of price distortion to rebut that presumption at the class certification stage. Halliburton does, however, raise a variety of new questions that will keep plaintiffs’ lawyers and defense counsel fighting for years to come. Determining the answers to these questions will be expensive, but ultimately of little social value. This contribution to the Duke Journal of Constitutional Law and Public Policy’s symposium “Fraud on the Market after Halliburton II” explains why. The problem stems from a mismatch between the form and function of Rule 10b-5 class actions, a mismatch created by the Supreme Court’s seminal decision in Basic v. Levinson, which first recognized the fraud-on-the-market presumption of reliance. Part I describes how this doctrinal innovation served to untether the Rule 10b-5 private right of action from its moorings in the common law of fraud, with the effect that Rule 10b-5 class actions today achieve none of the social benefits that flow from the common law fraud cause of action. Part II posits that Rule 10b-5 class actions might nevertheless serve a desirable social function, to the extent they produce new information about managerial misbehavior that is valuable to shareholders and regulators, and the value of that information
Publication Year: 2015
Publication Date: 2015-01-01
Language: en
Type: article
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