Professor Martin Gelter authored a LexBlog post based on his forthcoming book chapter, “Issuer Liability: Ownership Structure and the Circularity Debate.”
In many countries, investors can hold publicly traded companies liable for public misstatements. Issuer liability is intuitively appealing because statements are generally made on behalf of the company by its representatives. Moreover, large companies typically have deep pockets, which ensures compensation for investors who incurred losses because they traded during the period when stock prices were distorted by false information.
It is tempting to speculate whether the preferences of key interest groups in corporate governance have contributed to maintaining the current position. The critical interest group benefiting from issuer liability is plaintiff attorneys; the key interest group benefiting from its ineffectiveness in Europe is blockholders. Given the respective influence of these groups, we can expect differences in practices to persist.