Timing Is Everything: Markets, Loss, and Proof of Causation in Fraud on the Market Actions

Plaintiffs in securities fraud class actions must prove that defendants’ misconduct caused the investors’ losses. The U.S. Supreme Court’s 2011 decision in Erica P. John Fund, Inc. v. Halliburton Co. reaffirmed that loss causation is a quintessential merits issue that must be decided at trial. In three recent trials, juries have held defendants liable with findings of fact that are inconsistent with the Supreme Court’s doctrinal framework for securities fraud causation. This Note examines these verdicts and encourages the courts to depart from the common law of fraud and tighten the meaning of causation. To do this, courts must adhere to the economic theory that sustains modern class actions. Because losing parties will invariably move for post-trial relief, courts should develop rules that incorporate conceptual clarity and well-defined mechanisms of proof