‘fraud on the Market’: Judicial Approaches to Causation and Loss from Securities Nondisclosure in the United States, Canada and Australia

[Shareholder actions arising from misstatements and nondisclosure have been part of the legal landscape in the United States for some time. The Wall Street stock market crash of the 1920s saw the early development in the United States of strong laws for the protection of investors in the stock market, and the mechanism of the class action meant that large numbers of investors were able to seek remedies for loss caused by fraud, deceit, untrue statements and nondisclosures. This article examines the approach of United States courts to the problems of proving that breaches of the law identified are responsible for losses claimed, and the presumptions that those courts have used to establish this requisite element of causation — principally the ‘fraud on the market’ theory of presumed reliance adopted in 1988 by the Supreme Court of the United States in Basic Inc v Levinson. The treatment of the ‘fraud on the market’ theory by Canadian courts — which have rejected the theory as a presumption of law but have been open to presumptions of fact in particular cases — is also examined. Finally, there is an examination of causation and loss in shareholder actions for misleading and deceptive conduct in Australia. The effect of the introduction of laws giving statutory force to the continuous disclosure rules of the Australian Stock Exchange is also noted, and the author examines whether recognition of losses from such claims will lead to the adoption of a ‘fraud on the market’ analysis in Australia.]