Court rules for securities-fraud plaintiff

WASHINGTON, Feb. 27 (UPI) -- The U.S. Supreme Court, in a 6-3 ruling Wednesday, refused to tighten the requirement for filing a class-action securities fraud suit.

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.

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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.

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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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