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  1. Nov 2020
    1. A “fraud on the market” occurs when a material misrepresentation is knowingly disseminated to an informationally efficient market.  Basic, 485 U.S. at 247.   Just as an efficient market translates all available truthful information into the stock price, the market processes the publicly disseminated falsehood and prices it into the stock as well.   See id. at 241–42, 243–44, 246–47.   The market price of the stock will then include an artificial “inflationary” value—the amount that the market mistakenly attributes to the stock based on the fraudulent misinformation.   So long as the falsehood remains uncorrected, it will continue to taint the total mix of available public information, and the market will continue to attribute the artificial inflation to the stock, day after day.   If and when the misinformation is finally corrected by the release of truthful information (often called a “corrective disclosure”), the market will recalibrate the stock price to account for this change in information, eliminating whatever artificial value it had attributed to the price.   That is, the inflation within the stock price will “dissipate.”