Fraud on the Market: A Criticism of Dispensing with Reliance Requirements in Certain Open Market Transactions

The still-developing fraud on the market theory is the primary method by which securities fraud plaintiffs have attempted either to relax or eliminate the troubling reliance and causation requirements. Professor Black examines this emerging theory and suggests that the traditional common-law fraud concepts that focus on reliance and causation still have validity and continue, even in this context, to offer appropriate limitations on liability. The Article analyzes cases that have reduced or ignored this reliance element and explains why the legal concepts from which the fraud on the market theory evolved demand stricter adherence to reliance in certain markets but not in others. Professor Black incorporates the efficient market theory into her analysis by suggesting it as a condition which the courts should consider when determining the degree to which they will demand proof of causation and reliance in a securities fraud case