In Basic Inc. v. Levinson, 485 U.S. 224 (1988),
the U.S. Supreme Court adopted the "fraud-on-the-market" theory of reliance,
which presumes that investors who bought or sold a security did so in reliance
on the integrity of the market price of that security:
The fraud on the market theory is based on the hypothesis
that, in an open and developed securities market, the price of a company's
stock is determined by the available material information regarding the company
and its business...Misleading statements will therefore defraud purchasers of
stock even if the purchasers do not directly rely on the misstatements...The
causal connection between the defendants' fraud and the plaintiffs' purchase of
stock in such a case is no less significant than in a case of direct reliance
Id. at 241-42 (citation
omitted). The fraud-on-the-market doctrine dispenses with the requirement
that an investor prove that he or she was aware of a particular misstatement,
or that he or she directly relied on it. Id. at 246-47.
Recently, Oregon became the first state to adopt the
fraud-on-the-market theory. On December 13, 2012, the Oregon Supreme
Court issued an opinion finding that a stock purchaser who brings a claim for
damages based on misrepresentations under Oregon Securities Laws can rely on
the "fraud-on-the-market" doctrine. State of Oregon v. Marsh &
McLennan Cos., Inc., Nos. CC050808454, CAA139453, SC S059386, 2012 Ore. LEXIS 833 (Or. Sup. Ct.
Dec. 13, 2012). A copy of the opinion can be found here.
In Marsh, The State of Oregon, acting on behalf of
the Oregon Public Employee Retirement Fund (collectively, the "State"),
asserted state law claims against Marsh & McLennan Companies, Inc. and
Marsh, Inc. alleging that the insurance companies engaged in a scheme
perpetrated by false and misleading statements that caused the State to lose
approximately $10 million on investments in Marsh stock. The trial court
determined that the provisions of ORS 59.135 and ORS 59.137 require proof of
reliance, that the State had failed to establish proof of actual reliance, and
that a stock purchaser under Oregon's securities laws was prohibited from
establishing reliance through the fraud-on-the-market doctrine. The Court of
Appeals affirmed the trial court's determination.
In a unanimous opinion, the Oregon Supreme Court reversed
the decision of the Court of Appeals and remanded. After reviewing the
text, context, and legislative history, surrounding ORS 59.137, the Court
For the Oregon Securities Law to be consistent with the
corresponding federal securities law, the 2003 Oregon legislature must have
intended that fraud-on-the-market claims that had been recognized since 1988 by
the United States Supreme Court under federal securities law be incorporated
into Oregon law.
We conclude that, in recognizing claims under Oregon law
for damages to open market stock purchasers "caused by" misrepresentations by
companies whose stock is sold on the open market, the Oregon Legislative
Assembly intended that the causal connection in such sales could be established
through the use of the fraud-on-the-market doctrine. In other words, we
understand that in recognizing claims by open market stock purchasers, the
Oregon legislature also provided the means of proving such claims when the
stock purchases were made in non-face-to-face transactions on the open market -
and we further understand that the Oregon legislature intended to adopt as one
of the available means the fraud-on-the-market doctrine that the federal courts
had provided under federal securities law since 1988. To conclude otherwise
would be to interpret the terms of ORS 59.137 enacted by the Legislative
Assembly in a restrictive manner when the unquestioned intent of the
legislature was to expand the reach of the Oregon Securities Law to make it
consistent with federal securities law.
Id. at *11.
Recognizing that other state courts have not endorsed the
fraud-on-the-market doctrine under their state securities laws, the Oregon
Supreme Court noted that, "Each state court, of course, must address the issue
as a matter of statutory interpretation under its particular statutory scheme
using its own method of statutory interpretation...The fact that other state
courts have not determined that the fraud-on-the-market doctrine applies under
their own state laws provides little reason for us to follow that same path
here in Oregon." Id. at *12
subscribers can access enhanced versions of the opinions and annotated versions
of the statutes cited in this article:
Basic Inc. v. Levinson, 485 U.S. 224 (1988)
State of Oregon v. Marsh & McLennan Cos., Inc., Nos.
CC050808454, CAA139453, SC S059386, 2012 Ore. LEXIS 833 (Or. Sup. Ct. Dec. 13,
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