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20 J. Corp. L. 571 (1994-1995)
Basic Truths: The Implications of the Fraud-on-the-Market Theory for Evaluating the Misleading and Materiality Elements of Securities Fraud Claims

handle is hein.journals/jcorl20 and id is 581 raw text is: THE JOURNAL OF CORPORATION LAW Volume 20 Summer 1995 Number 4 Basic Truths: The Implications of the Fraud-on-the- Market Theory for Evaluating the Misleading and Materiality Elements of Securities Fraud Claims John M. Newman, Jr., Mark Herrmann, and Geoffrey J. Ritts* I. INTRODUCTION ........................................... 572 II. THE FRAUD-ON-THE-MARKET THEORY ........................... 572 A. The Crucial Importance of Professional Investors ................ 574 B. Inconsistent Application of the ECMH: The Truth-on-the-Market Cases 576 C. The Significance of Focusing on Market Professionals ............. 578 III. THE ELEMENT OF MISLEADINGNESS SHOULD BE VIEWED FROM THE STANDPOINT OF A PROFESSIONAL INVESTOR .................. 579 IV. THE ELEMENT OF MATERIALITY SHOULD BE VIEWED FROM THE STANDPOINT OF A PROFESSIONAL INVESTOR .................. 583 V. THE PLAINTIFF SHOULD BEAR THE BURDEN OF PLEADING AND PROVING THAT A STATEMENT MATERIALLY MISLED MARKET PROFESSIONALS .... 586 VI. CONCLUSION ............................................. 590 * Mr. Newman (Georgetown University, B.A. 1966; Harvard University, J.D. 1969) and Mr. Herrmann (Princeton University, A.B. 1979; The University of Michigan Law School, J.D. 1983) are partners in the Cleveland office of the international law firm Jones, Day, Reavis & Pogue. Mr. Ritts (Yale University, B.A. 1989; J.D. 1993) is an associate in the Cleveland office of the firm. Jones, Day, Reavis & Pogue regularly defends officers, directors, and corporations in class actions brought under the federal securities laws, and has served as counsel in some of the cases cited in this Article. The views set forth in this Article are those of the authors and do not necessarily represent the views of Jones, Day, Reavis & Pogue.

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