The Law and Economics of Securities Fraud: Section 29(a) and the Non-Reliance Clause

This Note examines whether precluding a plaintiff from claiming reasonable reliance on representations made outside of a final written agreement containing a non- reliance clause violates Section 29(a) of the Securities Exchange Act of 1934. The Note uses the Third Circuit's recent decision in AES v. Dow Chemical Co. to put the issue in context, and concludes that the court reached the wrong conclusion. By accepting the assumptions of law and economics, and addressing the arguments against such an approach from behavioralists and other critics, the Note argues that adopting a clear rule enforcing non-reliance clauses produces certainty in contractual dealings, leads to efficient outcomes, and will reduce the occurrences of fraud. As opposed to adopting a standard recognizing investors' cognitive vulnerabilities, this Note advocates for the adoption of a clear rule enforcing non-reliance clauses to preclude reasonable reliance as a matter of law against sophisticated parties in an arm's length transaction.