Courts have held that Rule 10b-5 provides a private right of
action that allows investors to recover damages in cases of
securities fraud. To be entitled for damages, investors must
demonstrate: (i) a material misrepresentation or omission by the
defendant; (ii) scienter; (iii) a connection between the
misrepresentation or omission and the purchase or sale of a
security; (iv) reliance upon the misrepresentation or omission; (v)
economic loss; and (vi) loss causation.
In Basic Inc. v.
Levinson (1988), the U.S. Supreme Court stated
that the reliance requirement placed "an unnecessarily
unrealistic evidentiary burden" on plaintiffs who traded on an
impersonal market. To alleviate this concern, the Court endorsed
the "fraud-on-the-market" theory, pursuant to which
plaintiffs benefit from a rebuttable presumption of reliance on
material misrepresentations made to the public. The endorsement of
the fraud-on-the-market presumption spurred the development of
securities class actions in the U.S.
The fraud-on-the-market presumption rests on the assumption
that, in an efficient market, the price of shares reflects all
publicly available information. Thus, a material misrepresentation
is reflected quickly in the price of a share. Further, investors
rely on share price as an expression of the share's value in
light of all public information.
In Halliburton, the U.S. Supreme Court will rule on the
questions as to whether it "should overrule of substantially
modify the holding of Basic Inc. v. Levinson [...] to the
extent that it recognizes a presumption of classwide reliance
derived from the fraud-on-the-market theory". The upcoming
decision is even more anticipated in light of Amgen Inc. v. Connecticut Retirement
Plans, decided in early 2013 and in which members
of the Supreme Court expressed reservations toward the
The outcome of Halliburton is of significant interest
for Canadian companies that are exposed to Rule 10b-5 liability in
the U.S. The revision of the fraud-on-the-market theory is also
relevant for Canadian law. Canadian securities legislation exempts
plaintiffs from the need to prove reliance in cases of secondary
market misrepresentations. However, at common law and civil law, it
remains unclear as to whether there exists a fraud-on-the-market
presumption of reliance. Thus, the decision in Halliburton
could influence Canadian case law on the existence of a presumption
This is the third in a series of five posts intended to
consider securities regulatory developments to watch in 2014.
Watch for the remaining posts over the course of the next week.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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