A Study On Legal Standards Of Misrepresentation Causation In U.S. Securities Laws

Misrepresentation is one of the most common forms of tort in the securitiesmarket, which may gravely impair investors’ interests. However, it is very difficultfor individual investors who have suffered economic losses to seek legal remedies injuridical practice. The main difficulty lies in the proving of causation-causality thatexists between misrepresentation and the investors’ economic damages. Being one ofthe constitutive requirements for suing securities fraud, causation is the logicaljunction point between fraudulent behaviors and the damage results, and it must beestablished in order to seek compensation from the defendant. Important as causationis, it remains the focus of dispute in the theoretical and practical circles ever since thesecurities market first emerged. The question here is: what kind of standards orrequirements the plaintiffs must meet to win misrepresentation litigation?Courts in the United States have tried in multitude of ways to solve this knottyproblem, so has the academic circle, who established many theories concerningcausation. Their goal is to bring justice and practicability to the market. This paperintroduces U.S securities regulations and cases with its focus on three importantelements of the six on proving misrepresentation causation: materiality; reliance; andloss causation. Besides these regulations and cases, this paper also discusses andanalyzes three latest cases concerning these three elements. The writer also drew somelessons from U.S securities misrepresentation causation proving standards, so that Chinese misrepresentation causation cognition system could be improved.This paper is comprised of six parts:The first part of this paper introduces the regulations in U.S Securities Act andSecurities Exchange Act concerning the establishment of causation betweenmisrepresentation and economic loss. Based on whether each statute states plaintiffright to sue, the standards of causation can be divided into two kinds: explicit and theimplicit. Among the explicit right to sue securities misrepresentation, the causationstandards can be sorted as causation proving required and causation provingnon-required, while the implicit right of suing misrepresentation can be classified intotransaction causation and loss causation.The second part states the decision in Matrixx v. Siracusano by the SupremeCourt, and analyzed "Material" standard in transaction causation proving.The third part elaborates case Malack v. BDO Seidman, and talks about"Reliance" standard in transaction causation proving.The forth part discusses the loss causation proving standard via narrating the caseIn re Gilead Sciences Litigation.The fifth part comments U.S securities misrepresentation causation provingstandards and the reference value of which to Chinese misrepresentation causationproving standards The last part of the paper claims that China shall draw lessons fromU.S misrepresentation causation proving experiences, to exempt proving burden thatunreasonably shouldered on the plaintiffs-private investors, so that a better causationproving system be established.