Alison Frankel reminds us that Affiliated Ute would survive even if the Supreme Court strikes down the fraud on the market theory in the pending Halliburton case:
“It is no answer to urge that, as to some of the petitioners, these defendants may have made no positive representation or recommendation,” the opinion said. “Under the circumstances of this case, involving primarily a failure to disclose, positive proof of reliance is not a prerequisite to recovery. All that is necessary is that the facts withheld be material in the sense that a reasonable investor might have considered them important in the making of this decision.”
The Affiliated Ute precedent thus draws a line between securities fraud claims involving misrepresentations and those involving omissions. ...
It’s widely accepted that if the Supreme Court reverses Basic and does away with fraud-on-the-market reliance, class actions based on misrepresentations will be decimated. But not cases based on omissions, thanks to Affiliated Ute.
Which is why the Supreme Court needs to take the ultimate step and disimply Rule 10b-5.
