The Affiliated Ute and fraud on the market reliance presumptions were unavailable to a plaintiff class making market manipulation claims, according to a 9th Circuit panel. The court also found no error in the decision by the district court not to recognize a presumption of reliance based on manipulations that allegedly destroyed the efficiency of the market and the reliability of the market’s price. In the absence of a reliance presumption, the class could not be certified because individual reliance claims would predominate. Desai v. Deutsche Bank Securities Ltd.
The action, more than seven years old and still at the class certification stage, alleged an elaborate scheme in which broker-dealers used securities loan transactions to conceal their manipulative activities to drive up the price of an OTC-traded stock. In a per curiam opinion, the court found that the Affiliated Ute presumption applied to omissions cases rather than market manipulation claims. A fraud on the market presumption was also not available because the company's securities did not trade in an efficient market.
The investors posited an argument described by the appeals court as "novel" to establish a presumption of reliance on "the integrity of the market" in the context of manipulation cases when other presumptions are unavailable. The appellate panel found that no authority required the district court to recognize such a presumption and the lower court did not abuse its discretion in refusing to do so.
In a separate concurrence, Judge O’Scannlain asserted that the panel should have decided definitively, one way or the other, whether the investors were entitled to plead the new "integrity of the market" presumption. The judge stated that in his view, such a presumption would not be valid. However, he asserted that "we must reach the validity of the integrity of the market presumption, for it is at the heart of the legal error Investors claim the district court made in the class certification ruling."
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