International Capital Market Tort Law in the USA and the EU

Which law governs the claims of investors who have been harmed by erroneous capital market information? Andreas Engel, former Research Assistant at the Max Planck Institute for Private Law, explores this conflict of laws question in his recently published dissertation and examines the applicable law as regards prospectus liability and liability for incorrect secondary market information in the USA and the EU. As part of his analysis, he identifies the shortcomings in the current regulatory system and develops a reform proposal for international capital market tort law.

Capital markets are becoming increasingly international in nature. As a negative consequence of this development, the level of legal certainty and predictability in international capital market tort law is insufficient. Andreas Engel illustrates this problem with reference to the jurisprudence of the United States Supreme Court as well as the European Rome II Regulation. In his analysis he compares the methodology and connecting factors employed in the USA and the EU. It becomes clear that disputes cannot be resolved efficiently and that both investors and the market as such are not sufficiently protected.

Nonetheless, Engel argues that these deficits can be remedied without a fundamental departure from the established legal regime. He sees a viable solution in the introduction of a conflict of laws rule for capital market torts that lets investors choose among the laws of all the states in which there was an obligation to disclose information. Further, he believes it appropriate to provide for accompanying investor protection measures in substantive law.

Andreas Engel is currently working as a researcher (Akademischer Rat) under Prof. Dr. Christian Heinze, LL.M. (Cambridge) at the University of Hannover’s Institut für Rechtsinformatik.