Moving Past Reliance – The Problem of a Reliance Requirement in Secondary Market Securities Litigation and Solutions from Select Jurisdictions

Abstract

447Investors’ individual reliance on misstated inside information as an element of causation in securities litigation has provoked criticism. Scholarship has long acknowledged that a reliance requirement is not justified as damage may occur without an investor’s reliance on misstated inside information in the secondary market. This article analyses the reliance requirement in select European jurisdictions (the Netherlands, Germany, Sweden, Norway, Denmark, Finland, and the United Kingdom) and the United States. The article investigates whether a reliance requirement exists in the secondary market litigation regime in said jurisdictions and analyses whether a presumption of reliance exists to fulfil the reliance requirement. The article argues that most of the suggested solutions to resolve the reliance problem are not entirely satisfactory. An often-suggested presumption of reliance, while leavening the investors’ burden of proof, keeps the reliance requirement in place. This article submits that proof of individual investors’ reliance should not be required in secondary market inside information misstatement cases. Discarding the reliance requirement altogether makes any presumptions redundant as well.448