Monday, June 18, 2012

The 10b-5 Daily: Supreme Court To Address Fraud-On-The-Market Theory

The 10b-5 Daily: Supreme Court To Address Fraud-On-The-Market Theory: "A key development this week was the Supreme Court's decision to hear the Amgen Inc. v. Connecticut Retirement Plans and Trust Funds case on appeal from the Ninth Circuit. Pursuant to the fraud-on-the-market theory, reliance by investors on a misstatement is presumed if the company's shares were traded on an efficient market that would have incorporated the information into the stock price. The fraud-on-the-market presumption is routinely invoked in securities class actions to justify the grant of class certification because it removes the potential need for individual evaluations of reliance.

At issue in the Amgen case is a circuit split over whether a plaintiff must prove that the misstatement was material to invoke the fraud-on-the-market theory in support of class certification. Three circuit courts (Second, Fifth and, to a lesser extent, the Third) previously have held that this is a required part of the fraud-on-the-market analysis when evaluating whether a class should be certified. The Ninth Circuit joined a decision from the Seventh Circuit, however, in rejecting that position. The court held that materiality is a merits question that does not affect whether class certification is appropriate"

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