The decision is a major victory for those trying to file class-action securities fraud litigation but the issue is so complicated the ruling may only be fully understood by corporate lawyers.
To recover damages under a provision of the 1934 Securities Exchange Act and a Securities and Exchange Commission regulation, a plaintiff eventually has to prove "a material misrepresentation or omission made by the defendant."
Legally, something is "material" when it has a significant effect on the controversy.
Over the years, the Supreme Court has endorsed a "fraud-on-the-market" theory, "which permits securities fraud plaintiffs to invoke a rebuttable presumption of reliance on public, material misrepresentations regarding securities traded in an efficient market," Wednesday's opinion explained.
"The fraud-on-the-market theory facilitates the certification of securities-fraud class actions by permitting reliance to be proved on a class-wide basis," the opinion said.
Connecticut Retirement Plans and Trust Funds invoked the fraud-on-the-market theory when it sought class-action certification against biotechnology giant Amgen, which has headquarters in California.
Though Amgen argued that Connecticut Retirement "must do more than plausibly plead that Amgen's alleged misrepresentations and misleading omissions materially affected Amgen's stock price," a federal judge certified the class and a federal appeals court agreed. Amgen asked the Supreme Court for review.
In the majority opinion, Justice Ruth Bader Ginsburg said, "Proof of materiality is not a prerequisite to certification of a securities-fraud class action seeking money damages for alleged violations of [the Securities Exchange Act] and the [SEC regulation]."
Ginsburg said, "The fraud-on-the-market premise is that the price of a security traded in an efficient market will reflect all publicly available information about a company; accordingly, a buyer of the security may be presumed to have relied on that information in purchasing the security."
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