Lu Yu

Securities fraud litigation: the erosion of “common reliance” in the AI age

Fraud-on-the-market doctrine allows for the establishment of common reliance: investors are presumed to rely on the integrity of the market price rather than having to prove they actually read or relied on the issuer’s disclosures. However, generative AI and alternative data are replacing “price-taker” investors with “price-challengers” who trade on detected price inaccuracies. This technological shift severs the nexus of common reliance, transforming private litigation from the vindication of rights into an exercise of quasi-regulatory power. As courts increasingly delegate loss calibration to opaque third-party models, the legal system must address the resulting “black box” of judicial power to maintain institutional legitimacy.