Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Sunday, April 24, 2011

Ferrell & Saha on 10b-5 Damages

Forward-Casting 10b-5 Damages: A Comparison to Other Methods, by Allen Ferrell, Harvard Law School; European Corporate Governance Institute (ECGI), and Atanu Saha, Compass Lexecon, was recently posted on SSRN.  Here is the abstract:

We propose in this paper the forward-casting method for estimating 10b-5 damages. We argue that this method compares favorably to two commonly used 10b-5 damage methods: constant dollar back-casting and the allocation method. Most importantly, both constant dollar back-casting and the allocation method, in contrast to forward-casting, fail to incorporate market expectations in estimating the stock price that would have obtained absent the alleged fraud. In the course of our discussion, we demonstrate how each one of these three methods work in practice using facts and data from an actual case. The choice of a damage method, as we document, can make a dramatic difference in estimated damages

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