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Supreme Court To Address Standards For Class Certification in Securities Fraud Actions and Whether Plaintiffs Need to Prove “Fraud On The Market” Claim to Certify a Class-Action

 

The Supreme Court in Amgen, Inc. v. Connecticut Retirement Plans & Trust Funds has recently agreed to decide on whether federal courts in certifying a securities class must decide in order to certify the class whether the fact of damages claims regarding a “fraud on the market” have merit or are true. Federal courts generally didn’t decide the merits of the case in class actions at the time of class certification. However, in the wake of the Supreme Court’s decision the Walmart class action corporate defendants and business interests have urged the Court to make Plaintiffs prove their case at the class certification stage.

An excellent article discussing the Supreme Court’s decision to hear Amgen and its ramifications can be reviewed by clicking here. The article explains the significance of the Supreme Court’s decision to hear the case as follows:

For over 20 years, the “fraud on the market” theory, which the Supreme Court endorsed in Basic Inc. v. Levinson, 485 U.S. 224 (1988), has been a key tool for plaintiffs in class action securities fraud litigation under Section 10(b) of the Securities Exchange Act and SEC Rule 10b-5. The theory posits that the price of a security trading in an efficient market reflects all publicly available information about that security. Based on that premise, the theory gives rise to a rebuttable presumption that investors rely on material misrepresentations reflected in market prices at the time they transact. Without this presumption, plaintiffs purporting to assert class action securities fraud claims would have difficulty showing reliance on a class-wide basis, and hence satisfying the typicality and predominance prerequisites to class certification under Fed. R. Civ. P. 23(a) and 23(b)(3). Decisions as to class certification strongly influence the balance of leverage as between plaintiffs and defendants in class actions generally. Thus, the showing plaintiffs must make in order to invoke the “fraud on the market” theory is a critical issue in securities litigation.

The impact of the Supreme Court’s decision in Amgen could go well beyond securities actions and make it more difficult to ever certify any type of class action.


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