Under the fraud-on-the-market theory, what supports a presumption of reliance?

• A. Efficient market presumption that price reflects public information.
• B. Actual knowledge by plaintiff.
• C. Direct evidence of misrepresentation.
• D. Misrepresentation occurred after the sale.

Answer: (A)

In fraud-on-the-market cases, a presumption of reliance arises when the market for the security is efficient and the price reflects public information. The idea is that in an efficient market, the price already incorporates all publicly available information about the security. If a misrepresentation is publicly made, it quickly becomes part of the price, so a plaintiff who bought or sold the security at that market price is presumed to rely on the integrity of the market price as an accurate summary of available information. This means the plaintiff doesn’t need to prove each individual relied on the specific misstatement.

Why this answer fits best: it captures why reliance is presumed without needing to show the plaintiff personally read or believed the misrepresentation. If the plaintiff actually knew the truth, the presumption wouldn’t apply because their decision wasn’t based on the market price reflecting information. Direct evidence of misrepresentation could prove liability but doesn’t create the broad presumption of reliance on market price. And if the misrepresentation came after the sale, it could not have influenced the plaintiff’s decision to buy or sell, so no presumption of reliance would attach based on market efficiency.