When a Pecuniary Externality Isn't
Arguably one problem with the argument, from the economic standpoint, is that the buyers' losses are the sellers' gains, hence the announcement did no net damage. It produced what economists call a pecuniary externality, an action by A that causes a transfer from B to C. That was the argument against fraud on the market suits that I offered in my Law's Order.
A more obvious example would be A becoming a physician, thus driving down the prices other physicians can charge for their services. That is an external cost to the other physicians but a matching benefit to their customers, so A is imposing no net negative externality. That is the economic argument in support of the well established common law rule that competition is not a tort--one firm can't collect damages from another just because the other's competition caused it to lose money.
Yesterday I read a paper, and heard a talk about it by the author, which provided a simple and interesting rebuttal. His argument was that the CEO is supposed to act as an agent for the existing stockholders--that, after all, is the theory of how a joint stock company works, even if imperfectly realized in practice. Everyone who gains from the temporary price rise by selling stock is someone who owned stock when the report was made and the price went up. So we can think of the CEO as acting not for himself nor for the firm, whatever that means, but for the existing stockholders. If we do, the externality is no longer pecuniary. It is merely an ordinary case of A taking an action that benefits him but injures B. The standard economic argument is that he will take such an action even if the gain (to him) is less than the loss (to B), hence the existence of externalities can result in actions that on net make us worse off.
Generalizing the point, whether we classify an externality as normal or pecuniary depends critically on what we assume about the relation between the actor and those affected. If A takes an action that benefits B at the cost of C that is a pecuniary externality--unless A had been talking with B first, and made some suitable arrangement to be reimbursed for helping him at C's expense.
It does not follow that fraud on the market suits are a good thing. Other objections can be made to the legal theory. But the objection I offered in Law's Order implicitly assumed that the CEO should not be viewed as a faithful agent of the current stockholders, an assumption it never occurred to me that I was making.