https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3664132 Skip to main content PDF iconDownload This Paper Open PDF in Browser Share: * * * Permalink Using these links will ensure access to this page indefinitely [https://papers.ssrn.] Copy URL [https://dx.doi.org/1] Copy DOI Is Everything Securities Fraud? 60 Pages Posted: 11 Sep 2020 See all articles by Emily Strauss Emily Strauss Duke University School of Law Date Written: July 22, 2020 Abstract Securities litigation is a virtually inevitable fact of life for any public company. Often, investors sue because the firm's managers engaged in fraud that directly harmed the shareholders - say, by doctoring the firm's financials, or lying about known business prospects. However, shareholders also sue their companies when those companies engage in conduct that primarily harms a different set of constituents. When a drug on the market proves to have dangerous side effects, a faulty car battery bursts into flames, or an oil rig explodes, it's difficult to say that the most direct victims are the companies' shareholders. Yet shareholders commonly sue under the federal securities laws based on precisely this kind of conduct, on the ground that the managers should have better disclosed the underlying facts, and investors were harmed by the resulting drop in stock price because they did not. This paper assesses the pervasiveness, attributes, and impact of these lawsuits. I find that roughly 16% of securities class actions arise from conduct where the most direct victims are not shareholders. However, I find that these cases have roughly a 20% lower likelihood of being dismissed, and settle for significantly higher amounts. These results persist even when controlling for variables such as firm size, class period duration, court expertise, and indicia of merits of the lawsuit, such as institutional investors as lead plaintiffs, earnings restatements within the class period, and whether the complaint cited an SEC investigation. These lawsuits are also more likely to be brought against large defendant firms, more likely to involve an institutional investor as a lead plaintiff, and much more likely to involve a non-SEC investigation or inquiry than cases where the primary victims are shareholders. I argue that although these cases may have deterrence value, the fact that they are likely to be more successful and lucrative may diminish incentives for shareholders to monitor their managers to prevent them from pursuing profitable conduct that harms outsiders. Suggested Citation: Suggested Citation Strauss, Emily, Is Everything Securities Fraud? (July 22, 2020). Available at SSRN: https://ssrn.com/abstract=3664132 or http:// dx.doi.org/10.2139/ssrn.3664132 Emily Strauss (Contact Author) Duke University School of Law Duke University School of Law ( email ) 210 Science Drive Box 90362 Durham, NC 27708 United States PDF iconDownload This Paper Open PDF in Browser Here is the Coronavirus related research on SSRN View the research Paper statistics Downloads 539 Abstract Views 13,693 7 References PlumX Metrics Related eJournals * S&P Global Market Intelligence Research Paper Series Follow S&P Global Market Intelligence Research Paper Series Subscribe to this free journal for more curated articles on this topic FOLLOWERS 2,431 PAPERS 32,484 * Corporate Finance: Governance, Corporate Control & Organization eJournal Follow Corporate Finance: Governance, Corporate Control & Organization eJournal Subscribe to this fee journal for more curated articles on this topic FOLLOWERS 2,063 PAPERS 30,118 This Journal is curated by: Rene M. Stulz at Ohio State University (OSU) - Department of Finance * Regulation of Financial Institutions eJournal Follow Regulation of Financial Institutions eJournal Subscribe to this fee journal for more curated articles on this topic FOLLOWERS 1,354 PAPERS 10,148 This Journal is curated by: G. William Schwert at University of Rochester - Simon Business School, Rene M. Stulz at Ohio State University (OSU) - Department of Finance * Corporate Law: Securities Law eJournal Follow Corporate Law: Securities Law eJournal Subscribe to this fee journal for more curated articles on this topic FOLLOWERS 957 PAPERS 6,451 This Journal is curated by: Bernard S. Black at Northwestern University - Pritzker School of Law * Organizations & Markets: Formal & Informal Structures eJournal Follow Organizations & Markets: Formal & Informal Structures eJournal Subscribe to this fee journal for more curated articles on this topic FOLLOWERS 687 PAPERS 9,109 * Organizations & Markets: Policies & Processes eJournal Follow Organizations & Markets: Policies & Processes eJournal Subscribe to this fee journal for more curated articles on this topic FOLLOWERS 679 PAPERS 18,529 * Regulation of Financial Institutions eJournal Follow Regulation of Financial Institutions eJournal Subscribe to this fee journal for more curated articles on this topic FOLLOWERS 498 PAPERS 9,666 This Journal is curated by: Howell E. Jackson at Harvard Law School * Corporate Governance & Law eJournal Follow Corporate Governance & Law eJournal Subscribe to this fee journal for more curated articles on this topic FOLLOWERS 247 PAPERS 9,159 This Journal is curated by: Lucian A. Bebchuk at Harvard Law School * Corporate Governance: Arrangements & Laws eJournal Follow Corporate Governance: Arrangements & Laws eJournal Subscribe to this fee journal for more curated articles on this topic FOLLOWERS 150 PAPERS 4,778 This Journal is curated by: Lucian A. Bebchuk at Harvard Law School Feedback Feedback to SSRN Feedback (required) [ ] Email (required) [ ] Submit If you need immediate assistance, call 877-SSRNHelp (877 777 6435) in the United States, or +1 212 448 2500 outside of the United States, 8:30AM to 6:00PM U.S. Eastern, Monday - Friday. Submit a Paper Section 508 Text Only Pages SSRN Quick Links * SSRN Solutions * Research Paper Series * Conference Papers * Partners in Publishing * Jobs & Announcements * Newsletter Sign Up SSRN Rankings * Top Papers * Top Authors * Top Organizations About SSRN * SSRN Objectives * Network Directors * Presidential Letter * Announcements * Contact us * FAQs * * * Copyright Terms and Conditions Privacy Policy We use cookies to help provide and enhance our service and tailor content. By continuing, you agree to the use of cookies. To learn more, visit our Cookies page. This page was processed by aws-apollo1 in 0.141 seconds