We will discuss three interrelated dimensions of the Supreme Court's recent case of Amgen v. Connecticut, issued last week, which held that shareholder class actions under the 10(b)-5 anti-fraud rule do not need to establish that alleged misstatements are material to use the fraud on the market presumption (which allows them to meet the reliance requirement in those actions) in obtaining class certification.
On one level this case appeared to be a victory for the plaintiff's bar. Since nearly all securities class actions either settle or are dismissed, a heightened pleading standard to obtain class certification could have significantly limited the settlement value of these suits.
On a second dimension, some of the Justices joining the opinion signaled their willingness to abandon the fraud on the market presumption, and its underlying assumption of market efficiency, altogether. The fraud on the market presumption assumes that all publicly available information is incorporated into stock price, and therefore essentially obviates the need for thousands of class action plaintiffs to demonstrate their reliance on particular fraudulent information and instead allows them to merely demonstrate their reliance on the stock's price. In that sense, this opinion may portend a future and major victory for the defense bar.
Yet on a third dimension, if the Court begins to relax the efficient markets assumption which underlies judicial doctrine in 10(b)-5 and the securities laws themselves, this may have unintended consequences for cost-benefit analysis in disclosure rule making by the Commission and for adjudication of other elements of 10(b)-5.
- Prof. J.W. Verret, George Mason University School of Law
Call begins at 2:00 p.m. Eastern Time.
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