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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