Reliance in Securities Fraud Actions

Summary

This practice note addresses the reliance element of a securities fraud action under Section 10(b) of the Securities Exchange Act of 1934, as amended (Exchange Act) (15 U.S.C. § 78j) and the available arguments against claims of reliance. To state a securities fraud claim, plaintiffs must demonstrate that they reasonably relied on the alleged misstatement or omission. Reliance is sometimes referred to as transaction causation. In securities fraud class actions, plaintiffs typically rely on the rebuttable presumption of reliance granted to plaintiffs asserting fraud-on-the-market theories or the rebuttable presumption of reliance on material omissions set forth in Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 152–53 (1972). This note discusses numerous defenses to rebut the presumption of reliance and provides practical considerations for various stages of litigation.