Under the new theory of ________, firms could be held liable if their stock prices fell significantly when the firms' projections of future earnings had been favorable.
A) fraud on the market
B) fraud on the nonmarket
C) the common factor
D) collective deception

Question

Quizplus · Accepted Answer

The term "fraud on the market" refers to a legal theory that allows investors to sue companies for securities fraud if they can prove that the company made material misrepresentations or omissions that affected the stock price. This theory was established by the Supreme Court in the landmark case Basic Inc. v. Levinson (1988). Under this theory, if a company's projections of future earnings were favorable, but turned out to be false, and the stock price subsequently fell significantly, investors could argue that they were misled and the company should be held liable for the fraud.

Under the New Theory of ________, Firms Could Be Held