Why Agency Fraud Is Like Fraud On The FDA


In our rather terse (due to firm involvement) post on Monday concerning Merck & Co. v. Ratliff, ___ S.W.3d ___, 2012 WL 413522 (Ky. App. Feb. 10, 2012) – beating both BNA and 360 by two days, BTW – we mentioned the “interesting” aspects of that case.  Having noodled it a bit more, we’ve concluded that one of these deserves a little more attention.

We noted that, in Ratliff, the court recognized similarities between “fraud on the market” and agency fraud theories such as fraud on the FDA.  Id. at *7.  We agree, and we’d like to explain a bit why this is so.

“Fraud on the market” as our posts on that subject have discussed, is a legal doctrine, so far (thankfully) unique to securities litigation, that waters down the traditionally rather stringent standards for proving fraud by creating a “presumption” of reliance in certain limited circumstances.  See Basic, Inc. v. Levinson, 485 U.S. 224 (1988) (4 justice majority of 7-justice court).  “Fraud on the market” isn’t a state-law claim.  Neither the Supreme Court nor any state high court has extended the “fraud on the market” presumption to any state-law action, even in the securities realm.  That proposition was what our 50-state fraud on the market post was intended to (and we think, did) establish.

In Basic, Inc., the Supreme Court bought a questionable proposition – that securities markets are uniquely “efficient” and “developed.”  In other words, because there are so many participants in national stock markets, and those participants have such a voracious appetite for information, then anything about a particular stock is essentially instantaneously reflected in that stock’s price.  Because of that (rather questionable) conclusion, any plaintiff in a securities fraud suit is “presumed” to rely on any material disinformation.

Please see full article below for more information.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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