Using the “leakage” theory to show loss causation in securities litigation
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Description
Abstract: A recent class action lawsuit gave the Seventh Circuit Court of Appeals the opportunity to weigh in on the “leakage model” for estimating stock price inflation. This article summarizes the case, noting that, although the court upheld the leakage model’s viability, it ultimately found that the evidence didn’t account for the possibility that non-fraud-related information could have affected the share price decline. A sidebar discusses what it means to make a false statement in connection with the purchase or sale of securities in violation of the SEC’s Rule 10b-5.
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