Matt Silverman


This Note addresses the circuit split regarding the “fraud created the market” presumption of reliance in Rule 10b-5 securities fraud cases. Fraud created the market was first adopted by the U.S. Court of Appeals for the Fifth Circuit in Shores v. Sklar, and applies in cases where a defendant has engaged in a “scheme to defraud” the investing public in the primary securities market. This Note first discusses Congress’s intent behind relevant securities laws, the effect presuming reliance has on the class certification process, and how the presumption of reliance has been applied in Rule 10b-5 actions by the U.S. Supreme Court. Next, this Note analyzes the initial acceptance of the fraud created the market theory in Shores, and the split between the U.S. Courts of Appeals for the Fifth, Tenth, and Eleventh Circuits, which have accepted the theory, and the U.S. Courts of Appeals for the Third and Seventh Circuits, which have rejected the theory. Finally, this Note argues that the Fifth Circuit’s unique interpretation of what constitutes a “scheme to defraud” in Abell v. Potomac Insurance Co. is consistent with congressional intent, urging its acceptance by the Supreme Court so that investors may have reliance presumed in the primary market.

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