September 09, 2015 Articles

The Reliance Element in U.S. and Canadian Securities Class Actions

Two countries separated by a common element

By James K. Goldfarb, Sumon Mazumdar, Usman M. Sheikh, and Sarah Woods

The United States and Canada both provide an aggrieved investor with redress for securities violations. In the United States, an investor may attempt to recover money damages under section 10(b) of the Securities Exchange Act of 1934, the general antifraud provision of the federal securities laws. In Canada, until recently, an investor’s main recourse was tort law, principally common-law negligent misrepresentation and fraud causes of action. Statutory causes of action for securities misrepresentations have only recently been enacted and are still evolving. Despite those differences in the evolution and form of securities remedies in the United States and Canada, the challenge of proving reliance, the element connecting an investor’s decision to buy or sell a security to a defendant’s misstatement or omission, is common to both countries’ securities class action regimes. What an investor must show to prove reliance, how it may show it, and whether it must be shown at all are answered differently in each jurisdiction. Understanding those differences might prove particularly useful as the plaintiffs’ securities bar seeks greener pastures north of the border, while the Canadian courts adapt to recent developments arguably designed to mimic the U.S.-securities-based presumption of reliance in securities class actions.

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