The North American Securities Administrators Association (NASAA) has urged the Oregon Supreme Court to reverse a decision by the state’s Court of Appeals which held that reliance forms a necessary element of a fraud claim under Section 59.137 of the Oregon Securities Law. Filing a brief as amicus curiae in support of the State of Oregon’s petition for review, NASAA contended that the ruling in State ex rel. Oregon State Treasurer v. Marsh & McLennan Cos., if allowed to stand, would severely weaken investor protection laws not only in Oregon, but nationwide. In NASAA’s view, the lower court’s holding significantly weakens the deterrent effect of the Oregon anti-fraud statute and creates road blocks that will prevent defrauded investors from seeking restitution. Additionally, NASAA argued, the decision would place Oregon in a minority with only four other states that require a plaintiff to personally rely upon a defendant’s materially false statement or omission, thereby inviting courts in other jurisdictions to erode similar investor protections.
The State of Oregon, acting as plaintiff in the case on behalf of its public employee retirement fund, had alleged that an insurance consulting and brokerage firm had published false and misleading statements on its website and in official documents in order to deceive investors about the firm’s unethical and illegal business practices. Although noting that the statutory text does not contain the word “reliance," the Court of Appeals reasoned that the language nonetheless implies that, in order to prove a violation, a purchaser must demonstrate fraud, deceit, or misleading conduct on the part of the defendant, all of which require reliance. The Court of Appeals also held that the Oregon Securities Law does not contain the presumption of an efficient market so as to relieve an investor of the burden of proving reliance in an action for securities fraud.
NASAA noted that, for years, Oregon has stood with the vast majority of states that do not require an investor to demonstrate reliance under their anti-fraud statutes. NASAA observed that Comment 4 to Section 509(b) of the Uniform Securities Act of 2002 expressly states that the precursor to Section 509(b), the model statute on which the Oregon anti-fraud provisions were based, has been held to require neither causation nor reliance as an element of a private cause of action. Moreover, the small minority of states that have created a reliance requirement have been severely criticized in leading treatises on state securities law for confusing an implicit and an express remedy. Unlike private actions brought under federal Rule 10b-5, which require reliance because the federal courts turned to the common law in creating an implied case of action, private actions brought under state securities laws are based on express causes of action contained in the language of the statutes themselves. Accordingly, the Oregon Court of Appeals erred when it decided to introduce an implicit element into a statute which contains an express cause of action with no such requirement. Moreover, NASAA contended, the Court of Appeals decision was inconsistent with prior interpretations of a similar statute, Section 59.135, which has been consistently held by the Oregon courts not to require reliance.
Even if the Oregon Supreme Court were to affirm the decision to incorporate a reliance requirement into Section 59.137, NASAA argued that the state high court should correct the Court of Appeals’ failure to recognize the longstanding securities law doctrine of “fraud on the market. " This doctrine, NASAA observed, presumes reliance where there exists a large and efficient market of investors relying upon the available information in the market to set the price for the securities. As NASAA believes that the Court of Appeals erred in ignoring this well-settled doctrine, the organization urged the state high court to grant review to correct the mistake.