Friday, November 02, 2012

Securities Industry Urges Supreme Court to Require Showing of Materiality at Class Certification Stage

The securities industry urged the US Supreme Court to require a plaintiff-investor in a securities fraud-on-the-market action to establish materiality at the class certification stage or, at a minimum, permit a company defendant the chance to rebut the presumption. In amicus brief, SIFMA asked the Court to reverse a Ninth Circuit panel ruling that the investor need not prove materiality to use the fraud-on-the-market presumption of reliance at the class certification stage. The case is set for oral argument on November 5, 2012. (Amgen, Inc. v. Connecticut Retirement Plans and Trust Funds, Dkt. No. 11-1085).

SIFMA said that requiring an investor to show materiality at class certification should not prove unduly burdensome, adding that there are many practicable ways to show materiality. A plaintiff may analyze the total mix of information available to market participants by reviewing public information, including issuer disclosures and press reports. A plaintiff may submit evidence of an appropriate event study on the impact of an alleged misrepresentation on the market price of the security.

There are also policy reasons to require the establishment of materiality at class certification, contended SIFMA. For one thing there is the in terrorem effects of certifying  a class on defendants, which is particularly pronounced in securities cases where amounts cam be very large. Requiring only allegations of materiality at class certification would substantially hinder a defendant’s ability to dispute non-meritorious claims before being subjected to overwhelming settlement pressure.

A rigorous analysis at the class certification stage allows federal courts to fairly and efficiently manage cases that are not suitable for class treatment. Further, allowing a class to be certified despite the availability of dispositive evidence refuting a claim of materiality would unnecessarily increase the costs of defending meritless suits and exacerbate the problem of in terrorem settlements of securities cases.

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