Prospectus Liability and Causation

Investors are increasingly seeking to recover damages that they suffer on the stock markets as a result of misleading representations. A company that publishes misleading information or omits material information which results in a misleading representation acts unlawfully. If the misrepresentation concerns a misleading prospectus that is published in the context of an Initial Price Offering (IPO) and/or share issuance, the doctrine of prospectus liability comes into play. Misrepresentations in a prospectus can lead to an artificially high stock price. As a result, investors that buy shares during the relevant period might suffer an economic loss. This loss will be suffered definitively as soon as the misrepresentation is exposed and the stock price subsequently drops. Investors will, however, only be eligible for compensation, if—and to the extent that­—the ­price loss that they suffered is sufficiently causally related to the misleading information in the prospectus. In my article ‘Prospectus Liability and Causation’, published in the Journal of European Tort Law, I analyse this causation requirement both from the perspective of substantive law and from the perspective of the law of evidence.