The basic premise of the article is simple:
That courts should limit plaintiffs to recovery for their out-of-pocket losses.Prof. Burch suggests that there is substantial difficulty with determining damages in current securities fraud class actions, due to an attempt by courts "to fashion common-law deceit and misrepresentation remedies to fit open-market fraud."
She offers a fairly detailed historical analysis of fraud (from common law up the modern securities laws) and the various remedies that courts have fashioned to compensate plaintiffs injured by fraud.
After an examination of the theories supporting private rights of action under Rule 10b-5 (compensation and deterrence), Prof. Burch turns to the "out-of-pocket" measure of damages a a possible solution to such problems as potential double recovery by plaintiffs:
The out-of-pocket measure is the only common-law remedy that recognizes the distinctions between face-to-face transactions and open-market fraud, that complies with the loss causation requirement, and that limits plaintiffs to their actual damages.Prof. Burch also suggests:
Restricting investors to out-of-pocket losses also advances optimal deterrence by increasing predictability through a clear doctrinal damage calculation.I'm not convinced that having prior knowledge of the measure of private securities fraud damages would deter most corporate wrongdoers from committing securities fraud, but the article is worth a look anyway.
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