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Hillary A Sale - One of the best experts on this subject based on the ideXlab platform.

  • what counts as Fraud an empirical study of motions to dismiss under the private Securities litigation reform act
    Journal of Empirical Legal Studies, 2005
    Co-Authors: Adam C Pritchard, Hillary A Sale
    Abstract:

    This article presents the findings of a study of the resolution of motions to dismiss Securities Fraud lawsuits since the passage of the Private Securities Litigation Reform Act (PSLRA) in 1995. Our sample consists of decisions on motions to dismiss in Securities class actions by district and appellate courts in the Second and Ninth Circuits for cases filed after the passage of the Reform Act to the end of 2002. These circuits are the leading circuits for the filing of Securities class actions and are generally recognized as representing two ends of the Securities class action spectrum. Post-PSLRA, the Second Circuit applies the least restrictive pleading standard to Securities claims and the Ninth Circuit applies the most restrictive. The Ninth Circuit's post-PSLRA reputation as being a tougher venue in which to win Securities Fraud class actions is borne out by a significantly higher dismissal rate. The differences between the two circuits are also reflected in factors that correlate with dismissal. For example, allegations of violations of accounting principles other than revenue recognition correlate negatively with dismissal in the Second Circuit. This coefficient, however, is insignificant in our regressions for the Ninth Circuit. Allegations of revenue recognition violations are insignificant in both circuits, regardless of whether the issuer has been forced to restate those revenues. The circuits part ways on other factors as well: the Second Circuit is significantly less likely to dismiss cases with allegations of false forward-looking statements, a surprising result given the stringent standards for such statements imposed by the PSLRA. The Ninth Circuit is significantly less likely to dismiss complaints with allegations of ‘33 Act violations, and the Second Circuit is more likely to dismiss cases brought by the Milberg Weiss firm. When it comes to insider trading, however, both circuits are skeptical, and the allegations correlate with dismissal in both circuits.

  • what counts as Fraud an empirical study of motions to dismiss under the private Securities litigation reform act
    Social Science Research Network, 2003
    Co-Authors: Adam C Pritchard, Hillary A Sale
    Abstract:

    This article presents the findings of a study of the resolution of motions to dismiss Securities Fraud lawsuits since the passage of the Private Securities Litigation Reform Act in 1995. Our sample consists of decisions on motions to dismiss in Securities class actions by district and appellate courts in the Second and Ninth Circuits for cases filed after the passage of the Reform Act to the end of 2001. These circuits are the leading circuits for the filing of Securities class actions and are generally recognized as representing two ends of the Securities class action spectrum. Post-PSLRA, the Second Circuit applies the least restrictive pleading standard to Securities claims and the Ninth Circuit applies the most restrictive. We find some evidence that the Ninth Circuit's post-PSLRA reputation as being a tougher venue in which to win Securities Fraud class actions is born out by a significantly higher dismissal rate. The differences between the two circuits are also reflected in factors that correlate with dismissal. For example, allegations of violations of accounting principles other than revenue recognition correlate negatively with dismissal in the Second Circuit. This coefficient, however, is insignificant in our regressions for the Ninth Circuit. Allegations of revenue recognition violations are insignificant in both circuits, whether or not the issuer has been forced to restate those revenues. The circuits part ways on other factors as well: the Second Circuit is significantly less likely to dismiss cases with allegations of false forward-looking statements, a surprising result given the stringent standards for such statements imposed by the PSLRA. The Ninth Circuit is significantly less likely to dismiss complaints with allegations of '33 Act violations and the Second Circuit is more likely to dismiss cases brought by the Milberg Weiss firm. When it comes to insider trading, however, the two circuits are both skeptical and the allegations correlate with dismissal in both circuits.

  • Securities Fraud as corporate governance reflections upon federalism
    Vanderbilt Law Review, 2003
    Co-Authors: Robert B Thompson, Hillary A Sale
    Abstract:

    Corporate governance law is no longer the state-dominated regime of the traditional legal scholarship or law school casebook. Instead, it has become a function openly shared between the state and federal governments. In this Article, Professors Thompson and Sale explore the reasons for this shift. Federal law increasingly regulates the duties of officers. In contrast, state law has long focused on the role of directors and is mostly silent on what officers are supposed to do. Yet, this indirect method of regulation was inadequate to address the recent corporate scandals. Federal law has also moved to fill the vacuum left by the exculpation of the duty of care that followed in the wake of Smith v. Van Gorkom. Finally, federal Securities Fraud actions have grown to become a close substitute for state fiduciary duty claims in the role of representative litigation to enforce corporate governance. In a head-to-head comparison, federal law has several advantages that have propelled its greater use. The result is now a shared and collaborative structure in which state and federal law jointly regulate corporate governance. State law gives corporate managers extremely broad power to direct increasingly large pools of collective business assets. Not surprisingly, economic incentives, norms, markets, and law all work to constrain the breadth of the power and the potential for abuse of what is other people's money.1 State corporate law has occupied the center stage in the legal portion of this landscape, with federal Securities law playing a supporting role-at least in the academic presentation of the debate. The New Deal's Securities legislation eschewed a general federal corporations statute in favor of a more focused federal role emphasizing disclosure and antiFraud protections for those who purchase and sell Securities.2 The Supreme Court has made clear that "Fraud" as proscribed in federal law was not to be defined in a way that annexed corporate governance.3 And, in 1995, Congress expressed a clear desire to limit the use of federal Securities Fraud lawsuits, at least insofar as those lawsuits were perceived to be frivolous.4 Yet, as this Article demonstrates, federal Securities law and enforcement via Securities Fraud class actions today have become the most visible means of regulating corporate governance. Securities Fraud law is ostensibly directed at buyers and sellers of Securities,5 but in the context of class actions, this purchaser-seller connection acts more like the minimalist jurisdictional hook of the interstate commerce requirement than a real constraint on the use of Securities law to regulate corporate governance.6 Federal Securities law is, of course, not the only legal constraint on managerial behavior, and a shareholder lawsuit based on disclosure is not the only litigation remedy. State law continues to provide the legal skeleton for the corporate form, and state fiduciary duty litigation continues as a mechanism frequently utilized to monitor managers. Yet, in today's world, state law does so almost entirely in two contexts-acquisitions and self-dealing transactions. The empirical evidence in this Article illustrates that corporate governance outside of these areas has passed to federal law and in particular to shareholder litigation under Rule 10b-5. The Sarbanes-Oxley Act of 2002, passed by Congress in the wake of numerous corporate accountability scandals, provides new evidence of the expanded role of federal law.7 The move to federal corporate governance, however, is broader than that law and has a longer history than the current scandals. The ascendancy of federal law in corporate governance reflects at least three factors. First, disclosure has become the most important method to regulate corporate managers, and disclosure has been predominantly a federal, rather than a state, methodology. Second, state law has focused largely on the duties and liabilities of directors, and not those of officers. …

  • Securities Fraud as corporate governance reflections upon federalism
    Social Science Research Network, 2002
    Co-Authors: Robert B Thompson, Hillary A Sale
    Abstract:

    Federal Securities law and enforcement via Securities Fraud class actions today has become the most visible presence in regulating corporate governance. State law, long at center stage in discussions of corporate governance, continues to provide the legal skeleton for the corporate form and state fiduciary duty litigation continues as a frequent means to monitor managers. Yet, in today's world, state law does so almost entirely in the specific contexts of decisions about acquisitions or in self-dealing transactions. The empirical evidence in this Article illustrates that corporate governance outside of these areas has passed to federal law and in particular to shareholder litigation under Rule 10b-5. The Sarbanes-Oxley Act of 2002, passed by Congress in the wake of the current corporate accountability scandals, provides new evidence of the expanded role of federal law. But, the move to federal corporate governance is broader than that law and has a longer history than the current scandals. The ascendancy of federal law in corporate governance reflects at least three factors. First, disclosure has become the most important method to regulate corporate managers and disclosure has been predominantly a federal, not a state, methodology. Second, state law has focused largely on the duties and liabilities of directors, and not officers, and federal law has increasingly occupied the space defining the duties and liabilities of officers. Officers have become the fulcrum of governance in today's corporations. Third, federal shareholder litigation based on Securities Fraud has several practical advantages over state shareholder litigation based on fiduciary duty that have contributed to the greater use of the federal forum. As a result of these trends, federal law now occupies the largest part of the legal corporate governance infrastructure in the 21st century. The outpouring of suggested reforms that have followed in the wake of Enron and WorldCom have focused on federal law and on the conduct of officers and directors, rather than state law, which in practice, focuses mainly on directors. Indeed, the discussions about reforms have excluded state law almost entirely. In this article, we develop the idea of federal law as corporate governance in three parts organized around history, empirical data, and analysis. In Part I, we begin with the traditional legal template. State corporate law is the focus and federal Securities law plays a supporting role. In Part II, we present empirical data on the use of both federal and state litigation to regulate corporate governance. We begin with a data set we have developed of Securities Fraud class action complaints filed in 1999. Our analysis of those complaints shows that Securities Fraud class action litigation is being used mostly in areas that relate to the managers' operation of the business. Not surprisingly, for example, many of the complaints raise concerns about the ways in which managers have recognized revenues or engaged in some form of accounting manipulation. From that base, we expand the story using data developed by others on Securities Fraud class actions more generally. Then, we compare transactions that give rise to Securities Fraud claims to another data set that covers all corporate cases filed in the Delaware Chancery Court for that same year. The result is a surprisingly narrow focus for state litigation and a much broader one for federal suits, revealing a gap in the standard learning about corporate governance. In Part III, we address how the federal Securities Fraud picture we provide might fit with state shareholder litigation in a current theory of corporate governance.

Jill E Fisch - One of the best experts on this subject based on the ideXlab platform.

  • the myth of morrison Securities Fraud litigation against foreign issuers
    Social Science Research Network, 2019
    Co-Authors: Robert P Bartlett, Jill E Fisch, Matthew D Cain, Steven Davidoff Solomon
    Abstract:

    Using a sample of 388 Securities Fraud lawsuits filed between 2002 and 2017 against foreign issuers, we examine the effect of the Supreme Court's decision in Morrison v. National Australia Bank Ltd. We find that the description of Morrison as a steamroller, substantially ending litigation against foreign issuers, is a myth. Instead, we find that Morrison did not significantly change the type of litigation brought against foreign issuers, which, both before and after this case, focused on foreign issuers with a U.S. listing and substantial U.S. trading volume. Although dismissal rates rose post-Morrison, we find no evidence that this was related to the decision. Settlement amounts and attorneys' fees remained unchanged post-Morrison. We use these findings to theorize that Morrison was primarily a preemptive decision about standing that firmly delineated the exposure of foreign issuers to U.S. liability in response to the Vivendi case, which sought to expand the scope of liability for foreign issuers whose shares traded primarily in non-U.S. venues. When Morrison is placed in its true context, it is justified as a decision in line with administrative and court actions that have historically aligned firms' U.S. liability to be proportional to their U.S. presence. Although Morrison had this defining effect, it did not change the litigation environment for foreign issuers, which was the oft-cited import of the decision. More generally, our analysis of Morrison underscores how the decision has been mistakenly characterized as a case primarily about extraterritoriality rather than standing.

  • the logic and limits of event studies in Securities Fraud litigation
    Texas Law Review, 2018
    Co-Authors: Jill E Fisch, Jonah B Gelbach, Jonathan Klick
    Abstract:

    markdownabstractEvent studies have become increasingly important in Securities Fraud litigation, and the Supreme Court’s 2014 decision in Halliburton Co. v. Erica P. John Fund, Inc. heightened their importance by holding that the results of event studies could be used to obtain or rebut the presumption of reliance at the class certification stage. As a result, getting event studies right has become critical. Unfortunately, courts and litigants widely misunderstand the event study methodology leading, as in Halliburton, to conclusions that differ from the stated standard. This Article provides a primer explaining the event study methodology and identifying the limitations on its use in Securities Fraud litigation. It begins by describing the basic function of the event study and its foundations in financial economics. The Article goes on to identify special features of Securities Fraud litigation that cause the statistical properties of event studies to differ from those in the scholarly context in which event studies were developed. Failure to adjust the standard approach to reflect these special features can lead an event study to produce conclusions inconsistent with the standards courts intend to apply. Using the example of the Halliburton litigation, we illustrate the use of these adjustments and demonstrate how they affect the results in that case. The Article goes on to highlight the limitations of event studies and explains how those limitations relate to the legal issues for which they are introduced. These limitations bear upon important normative questions about the role event studies should play in Securities Fraud litigation.

  • the logic and limits of event studies in Securities Fraud litigation
    Social Science Research Network, 2017
    Co-Authors: Jill E Fisch, Jonah B Gelbach, Jonathan Klick
    Abstract:

    Event studies have become increasingly important in Securities Fraud litigation after the Supreme Court’s decision in Halliburton II. Litigants have used event study methodology, which empirically analyzes the relationship between the disclosure of corporate information and the issuer’s stock price, to provide evidence in the evaluation of key elements of federal Securities Fraud, including materiality, reliance, causation, and damages. As the use of event studies grows and they increasingly serve a gatekeeping function in determining whether litigation will proceed beyond a preliminary stage, it will be critical for courts to use them correctly. This Article explores an array of considerations related to the use of event studies in Securities Fraud litigation. It starts by describing the basic function of the event study: to determine whether a highly unusual price movement has occurred and the traditional statistical approach to making that determination. The Article goes on to identify special features of Securities Fraud litigation that distinguish litigation from the scholarly context in which event studies were developed. The Article highlights the fact that the standard approach can lead to the wrong conclusion and describes the adjustments necessary to address the litigation context. We use the example of six dates in the Halliburton litigation to illustrate these points. Finally, the Article highlights the limitations of event studies – what they can and cannot prove – and explains how those limitations relate to the legal issues for which they are introduced. These limitations bear upon important normative questions about the role event studies should play in Securities Fraud litigation.

  • after halliburton event studies and their role in federal Securities Fraud litigation
    Research Papers in Economics, 2016
    Co-Authors: Jill E Fisch, Jonah B Gelbach, Jonathan Klick
    Abstract:

    Event studies have become increasingly important in Securities Fraud litigation after the Supreme Court's decision in Halliburton II. Litigants have used event study methodology, which empirically analyzes the relationship between the disclosure of corporate information and the issuer's stock price, to provide evidence in the evaluation of key elements of federal Securities Fraud, including materiality, reliance, causation, and damages. As the use of event studies grows and they increasingly serve a gatekeeping function in determining whether litigation will proceed beyond a preliminary stage, it will be critical for courts to use them correctly. This Article explores an array of considerations related to the use of event studies in Securities Fraud litigation. It starts by describing the basic function of the event study: to determine whether a highly unusual price movement has occurred and the traditional statistical approach to making that determination. The Article goes on to identify special features of Securities Fraud litigation that distinguish litigation from the scholarly context in which event studies were developed. The Article highlights the fact that the standard approach can lead to the wrong conclusion and describes the adjustments necessary to address the litigation context. We use the example of six dates in the Halliburton litigation to illustrate these points. Finally, the Article highlights the limitations of event studies - what they can and cannot prove - and explains how those limitations relate to the legal issues for which they are introduced. These limitations bear upon important normative questions about the role event studies should play in Securities Fraud litigation.

  • federal Securities Fraud litigation as a lawmaking partnership
    Social Science Research Network, 2015
    Co-Authors: Jill E Fisch
    Abstract:

    In its most recent Halliburton II decision, the Supreme Court rejected an effort to overrule its prior decision in Basic Inc. v. Levinson. The Court reasoned that adherence to Basic was warranted by principles of stare decisis that operate with “special force” in the context of statutory interpretation. This Article offers an alternative justification for adhering to Basic — the collaboration between the Court and Congress that has led to the development of the private class action for federal Securities Fraud. The Article characterizes this collaboration as a lawmaking partnership and argues that such a partnership offers distinctive lawmaking advantages.Halliburton II offered a compelling illustration of the lawmaking partnership, as Congress and the Court together used the Basic decision as a building block to enable and then refine private Securities Fraud class actions. Notably, Congress took affirmative steps through legislation — the Private Securities Litigation Reform Act and the Securities Litigation Uniform Standards Act — to balance the competing policy objectives of allowing effective enforcement while limiting the potential for abusive litigation. The process illustrates the three critical components of a lawmaking partnership: an open-textured statute, sequential adjustments to the statutory scheme by both the Court and Congress, and a set of common objectives to guide the lawmaking enterprise. This Article argues that the existence of a lawmaking partnership offers the Court the freedom to engage in explicit policy analysis of a type that is inconsistent with a traditional textualist approach. Put differently, the partnership operates as a type of rule of construction allowing the Court to engage in its own analysis of the interpretation that will best further congressional objectives. The lawmaking partnership also offers distinctive lawmaking advantages, including efficiency, political insulation, and comparative institutional competence. An exploration of these advantages can be used to identify the potential value of the lawmaking partnership beyond federal Securities Fraud.

Michael A Perino - One of the best experts on this subject based on the ideXlab platform.

  • law ideology and strategy in judicial decision making evidence from Securities Fraud actions
    Journal of Empirical Legal Studies, 2006
    Co-Authors: Michael A Perino
    Abstract:

    Legal academics and political scientists continue to debate whether the legal, attitudinal, or strategic model best explains judicial decision making. One limitation in this debate is the high-court bias found in most studies. This article, by contrast, examines federal district court decisions, specifically interpretations of the Private Securities Litigation Reform Act of 1995. Initial interpretations of the Act articulated distinct liberal and conservative positions. The data compiled here support the hypothesis that the later emergence of an intermediate interpretation was the result of strategic statutory interpretation rather than simply judges acting consistently with their ideological preferences, although there is some evidence that judges adopting the most conservative interpretation of the Act were acting consistently with the attitudinal model. There is weaker evidence to support the legal model, an unsurprising result given the severe test the study design creates for that model.

  • stock price response to news of Securities Fraud litigation an analysis of sequential and conditional information
    Social Science Research Network, 2004
    Co-Authors: Paul A Griffin, Joseph A Grundfest, Michael A Perino
    Abstract:

    This study examines investor response to three events that help define a federal class action Securities lawsuit, specifically, the announcement that names an issuer as a defendant in the lawsuit (at the class action filing date), the disclosure or accounting restatement that 'corrects' the information deficiency (at the end of the class period), and the date at which the Fraud on the market allegedly begins (at the beginning of the class period). We document a significant and predictable stock price response at each of these three events. Our tests also indicate that the market interprets these events not in isolation but as sequential and conditional events. Investor response differs on the basis of the characteristics of the issuer, the allegations in the complaint, and the outcome of the litigation. These results and the fact that we observe no systematic price momentum in investor response beyond the announcement dates imply that the market is reasonably efficient with respect to information about Securities Fraud litigation. Our results are robust to alternative definitions and procedures, and are based on a proprietary database that includes almost all federal Securities class action lawsuits since 1990.

  • stock price response to news of Securities Fraud litigation market efficiency and the slow diffusion of costly information
    Social Science Research Network, 2000
    Co-Authors: Paul A Griffin, Joseph A Grundfest, Michael A Perino
    Abstract:

    This study distinguishes between announcements that precipitate federal class action Securities Fraud litigation, such as earnings surprises and restatements, and the later announcement that an issuer has been named as a defendant in such a lawsuit. The study documents a statistically significant negative short-term price response to the litigation announcement as well as a negative response that persists for several weeks subsequent to the litigation announcement. The response over shorter and longer horizons is more pronounced for smaller firms and for firms with less analyst coverage. Also, passage of the Private Securities Litigation Reform Act of 1995 reduced the cost of obtaining information about the initiation of these lawsuits and is correlated with a more rapid price response, particularly among smaller issuers and those with less analyst coverage. Although these findings are hardly dispositive of the debate, they present a case study of a price pattern that is far more consistent with a costly-information explanation of stock market price formation than with any behavioral model of which we are aware. These findings also suggest that careful examination of market microstructure and information cost considerations can usefully explain patterns that might otherwise seem inconsistent with the efficient market hypothesis.

  • Securities litigation reform the first year s experience a statistical and legal analysis of class action Securities Fraud litigation under the private Securities litigation reform act of 1995
    1997
    Co-Authors: Joseph Grundfest, Michael A Perino
    Abstract:

    This paper presents a preliminary analysis of the effects of the Private Securities Litigation Reform Act of 1995 on class action Securities Fraud litigation behavior. The Reform Act appears to have had little effect on the aggregate number of companies sued, but has induced a substitution effect into state court where plaintiff's argue that many of the Act's provisions do not apply. Complaints now allege accounting irregularities and trading by insiders with greater frequency than before, while pure false forecasting cases are now relatively rare. The average stock price decline preceding litigation is now 31%, whereas prior to the Reform Act it was 19%. The Act's "strong inference" pleading requirement is the most likely cause of these shifts. High technology firms continue to be the most frequent targets of litigation, and the appearance ratio of the largest plaintiffs' firm, Milberg Weiss, has increased significantly nationwide and particularly in California. These findings are all consistent with a model that views class action Securities Fraud litigation as an economic process involving rational profit maximizing agents. The data are, however, too preliminary to support strong conclusions regarding the "success" or "failure" of Reform Act innovations.

Adam C Pritchard - One of the best experts on this subject based on the ideXlab platform.

  • what counts as Fraud an empirical study of motions to dismiss under the private Securities litigation reform act
    Journal of Empirical Legal Studies, 2005
    Co-Authors: Adam C Pritchard, Hillary A Sale
    Abstract:

    This article presents the findings of a study of the resolution of motions to dismiss Securities Fraud lawsuits since the passage of the Private Securities Litigation Reform Act (PSLRA) in 1995. Our sample consists of decisions on motions to dismiss in Securities class actions by district and appellate courts in the Second and Ninth Circuits for cases filed after the passage of the Reform Act to the end of 2002. These circuits are the leading circuits for the filing of Securities class actions and are generally recognized as representing two ends of the Securities class action spectrum. Post-PSLRA, the Second Circuit applies the least restrictive pleading standard to Securities claims and the Ninth Circuit applies the most restrictive. The Ninth Circuit's post-PSLRA reputation as being a tougher venue in which to win Securities Fraud class actions is borne out by a significantly higher dismissal rate. The differences between the two circuits are also reflected in factors that correlate with dismissal. For example, allegations of violations of accounting principles other than revenue recognition correlate negatively with dismissal in the Second Circuit. This coefficient, however, is insignificant in our regressions for the Ninth Circuit. Allegations of revenue recognition violations are insignificant in both circuits, regardless of whether the issuer has been forced to restate those revenues. The circuits part ways on other factors as well: the Second Circuit is significantly less likely to dismiss cases with allegations of false forward-looking statements, a surprising result given the stringent standards for such statements imposed by the PSLRA. The Ninth Circuit is significantly less likely to dismiss complaints with allegations of ‘33 Act violations, and the Second Circuit is more likely to dismiss cases brought by the Milberg Weiss firm. When it comes to insider trading, however, both circuits are skeptical, and the allegations correlate with dismissal in both circuits.

  • what counts as Fraud an empirical study of motions to dismiss under the private Securities litigation reform act
    Social Science Research Network, 2003
    Co-Authors: Adam C Pritchard, Hillary A Sale
    Abstract:

    This article presents the findings of a study of the resolution of motions to dismiss Securities Fraud lawsuits since the passage of the Private Securities Litigation Reform Act in 1995. Our sample consists of decisions on motions to dismiss in Securities class actions by district and appellate courts in the Second and Ninth Circuits for cases filed after the passage of the Reform Act to the end of 2001. These circuits are the leading circuits for the filing of Securities class actions and are generally recognized as representing two ends of the Securities class action spectrum. Post-PSLRA, the Second Circuit applies the least restrictive pleading standard to Securities claims and the Ninth Circuit applies the most restrictive. We find some evidence that the Ninth Circuit's post-PSLRA reputation as being a tougher venue in which to win Securities Fraud class actions is born out by a significantly higher dismissal rate. The differences between the two circuits are also reflected in factors that correlate with dismissal. For example, allegations of violations of accounting principles other than revenue recognition correlate negatively with dismissal in the Second Circuit. This coefficient, however, is insignificant in our regressions for the Ninth Circuit. Allegations of revenue recognition violations are insignificant in both circuits, whether or not the issuer has been forced to restate those revenues. The circuits part ways on other factors as well: the Second Circuit is significantly less likely to dismiss cases with allegations of false forward-looking statements, a surprising result given the stringent standards for such statements imposed by the PSLRA. The Ninth Circuit is significantly less likely to dismiss complaints with allegations of '33 Act violations and the Second Circuit is more likely to dismiss cases brought by the Milberg Weiss firm. When it comes to insider trading, however, the two circuits are both skeptical and the allegations correlate with dismissal in both circuits.

  • markets as monitors a proposal to replace class actions with exchanges as Securities Fraud enforcers
    Virginia Law Review, 1999
    Co-Authors: Adam C Pritchard
    Abstract:

    This Article proposes the replacement of Securities Fraud class actions for "Fraud on the market" with an enforcement regime administered by the Securities exchanges. It discusses the social costs of Fraud in secondary trading markets and the respective roles of compensation and deterrence in controlling those costs. The expense and ineffectiveness of Securities class actions in achieving deterrence are explained. An alternative regime enforced by the exchanges is outlined, and the incentives of exchanges to enforce anti-Fraud prohibitions are analyzed.

Jonathan Klick - One of the best experts on this subject based on the ideXlab platform.

  • the logic and limits of event studies in Securities Fraud litigation
    Texas Law Review, 2018
    Co-Authors: Jill E Fisch, Jonah B Gelbach, Jonathan Klick
    Abstract:

    markdownabstractEvent studies have become increasingly important in Securities Fraud litigation, and the Supreme Court’s 2014 decision in Halliburton Co. v. Erica P. John Fund, Inc. heightened their importance by holding that the results of event studies could be used to obtain or rebut the presumption of reliance at the class certification stage. As a result, getting event studies right has become critical. Unfortunately, courts and litigants widely misunderstand the event study methodology leading, as in Halliburton, to conclusions that differ from the stated standard. This Article provides a primer explaining the event study methodology and identifying the limitations on its use in Securities Fraud litigation. It begins by describing the basic function of the event study and its foundations in financial economics. The Article goes on to identify special features of Securities Fraud litigation that cause the statistical properties of event studies to differ from those in the scholarly context in which event studies were developed. Failure to adjust the standard approach to reflect these special features can lead an event study to produce conclusions inconsistent with the standards courts intend to apply. Using the example of the Halliburton litigation, we illustrate the use of these adjustments and demonstrate how they affect the results in that case. The Article goes on to highlight the limitations of event studies and explains how those limitations relate to the legal issues for which they are introduced. These limitations bear upon important normative questions about the role event studies should play in Securities Fraud litigation.

  • the logic and limits of event studies in Securities Fraud litigation
    Social Science Research Network, 2017
    Co-Authors: Jill E Fisch, Jonah B Gelbach, Jonathan Klick
    Abstract:

    Event studies have become increasingly important in Securities Fraud litigation after the Supreme Court’s decision in Halliburton II. Litigants have used event study methodology, which empirically analyzes the relationship between the disclosure of corporate information and the issuer’s stock price, to provide evidence in the evaluation of key elements of federal Securities Fraud, including materiality, reliance, causation, and damages. As the use of event studies grows and they increasingly serve a gatekeeping function in determining whether litigation will proceed beyond a preliminary stage, it will be critical for courts to use them correctly. This Article explores an array of considerations related to the use of event studies in Securities Fraud litigation. It starts by describing the basic function of the event study: to determine whether a highly unusual price movement has occurred and the traditional statistical approach to making that determination. The Article goes on to identify special features of Securities Fraud litigation that distinguish litigation from the scholarly context in which event studies were developed. The Article highlights the fact that the standard approach can lead to the wrong conclusion and describes the adjustments necessary to address the litigation context. We use the example of six dates in the Halliburton litigation to illustrate these points. Finally, the Article highlights the limitations of event studies – what they can and cannot prove – and explains how those limitations relate to the legal issues for which they are introduced. These limitations bear upon important normative questions about the role event studies should play in Securities Fraud litigation.

  • after halliburton event studies and their role in federal Securities Fraud litigation
    Research Papers in Economics, 2016
    Co-Authors: Jill E Fisch, Jonah B Gelbach, Jonathan Klick
    Abstract:

    Event studies have become increasingly important in Securities Fraud litigation after the Supreme Court's decision in Halliburton II. Litigants have used event study methodology, which empirically analyzes the relationship between the disclosure of corporate information and the issuer's stock price, to provide evidence in the evaluation of key elements of federal Securities Fraud, including materiality, reliance, causation, and damages. As the use of event studies grows and they increasingly serve a gatekeeping function in determining whether litigation will proceed beyond a preliminary stage, it will be critical for courts to use them correctly. This Article explores an array of considerations related to the use of event studies in Securities Fraud litigation. It starts by describing the basic function of the event study: to determine whether a highly unusual price movement has occurred and the traditional statistical approach to making that determination. The Article goes on to identify special features of Securities Fraud litigation that distinguish litigation from the scholarly context in which event studies were developed. The Article highlights the fact that the standard approach can lead to the wrong conclusion and describes the adjustments necessary to address the litigation context. We use the example of six dates in the Halliburton litigation to illustrate these points. Finally, the Article highlights the limitations of event studies - what they can and cannot prove - and explains how those limitations relate to the legal issues for which they are introduced. These limitations bear upon important normative questions about the role event studies should play in Securities Fraud litigation.