View Full Document

The political economy of fraud on the market



View the full content.
View Full Document
View Full Document

6 views

Unformatted text preview:

THE POLITICAL ECONOMY OF FRAUD ON THE MARKET William W Bratton and Michael L Wachter Abstract The fraud on the market class action no longer enjoys substantive academic support The justifications traditionally advanced by its defenders compensation for out of pocket loss and deterrence of fraud are thought to have failed due to the action s real world dependence on enterprise liability and issuer funding of settlements The compensation justification collapses when considered from the point of view of different types of shareholders Well diversified shareholders receipts and payments of damages even out over time and amount to a wash before payment of litigation costs The shareholders arguably in need of compensation fundamental value investors who rely on published reports are undercompensated due to pro rata distribution of settlement proceeds to all class members The deterrence justification fails when enterprise liability is compared to alternative modes of enforcement Actions against individual perpetrators would deter fraud more effectively than does enterprise liability If as the consensus view now has it fraud on the market makes no policy sense then its abolition would seem to be the next logical step Yet most observers continue to accept it on the same ground cited by the Supreme Court in 1964 when it first implied a private right of action under the 1934 Act in J I Case v Borak a private enforcement supplement is needed in view of inadequate SEC resources Restating even a private enforcement supplement that makes no sense is better than no private enforcement supplement at all This Article questions this backstop policy conclusion highlighting the sticking points retarding movement toward fraud on the market s abolition and mapping a plausible route to a superior enforcement outcome We recommend that private plaintiffs be required to meet an actual reliance standard We look to the Securities and Exchange Commission SEC rather than Congress or the courts to



Access the best Study Guides, Lecture Notes and Practice Exams

Loading Unlocking...
Login

Join to view The political economy of fraud on the market and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view The political economy of fraud on the market and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?