Indiana Law Journal

Article Title

Fraud on Any Market

Document Type


Publication Date

Spring 2022

Publication Citation

97 Indiana Law Journal 659 (2022)


Claims of securities fraud had historically failed because investors seldom rely on false or misleading statements when transacting securities. To bolster confidence in securities markets, the U.S. Supreme Court adopted a doctrine called “fraud-on-the-market” so that duped investors can show detrimental reliance without ever encountering the fraudulent statements. The doctrine assumes that a stock’s price reflects all material information, meaning that an investor who bought tainted stock has constructively relied on the fraud.

Fraud-on-the-market is not only unavailable in other markets but is also embattled within securities law. The doctrine has endured volleys of criticisms about whether markets actually absorb information, leading critics to believe that the Supreme Court would eliminate it in 2014. The Court did not. In light of persistent questions about whether the doctrine reflects reality or has outlived its purpose, our empirical research tests fraud-on-the-market’s viability by investigating sports gambling: we find that the doctrine provides a sound remedy for investors in any market.

The sports wagering market operates like others in which defrauded individuals have historically failed to support their fraud claims due to a lack of reliance. We show that securities and gambling markets suffer from many of the same frailties. Chief among them is that both investors and bettors place money in markets where they lack information about deception, cheating, and fraud. And like investors rely on prices affected by fraud, gamblers reference wagering information based on the playing field: if deception enables a team to fare better or worse, this skews the betting lines on which gamblers rely. The difference between these markets, though, is that investors enjoy a body of securities law to condemn fraud.

We first argue that fraud-on-the-market would benefit most types of investable markets like sports gambling and support the doctrine in the securities context. Despite criticisms of the doctrine, our analysis shows that fraud creates the presumption of distorted prices. Second, the money wagered via sports betting and daily fantasy sports (DFS) would generate damages such that leagues would better maintain a competitive environment, boosting sports integrity akin to how securities regulations provide market protections. Also, our argument recognizes the inequity of denying sports bettors and DFS users a remedy. Whereas the leagues had traditionally benefited from gambling indirectly, today, the NFL, NHL, MLB, and NBA have partnered with DFS and other gambling industry companies. Since the leagues now benefit directly from gambling, and lucratively so, they should owe their fans a truly competitive landscape.