In
Basic, the Supreme Court endorsed the fraud-on-the-market theory under which
courts can presume that securities prices in an open and developed market
reflect all material public information and that investors rely on the
integrity of the market price. These two presumptions allow investors to
establish that they relied, indirectly, on alleged on the false statements of
corporate managers. Similarly, argued amici, materiality is a common question
to class members. In addition, the economic proof will be unitary for all
members of the class and will also be identical to any showing required of the
plaintiff-investors on the merits.
The
economic arguments that the company offers to challenge the SSEMH, namely that
markets do not process all forms of information in the same way or at identical
speeds, do not go to the legal question of materiality defined by the Court.
Amici further expounded that SSEMH was not a simply a theory that the Court
found helpful in rendering its ruling in Basic, but was actually central to the
Court’s interpretation of the intent of Congress. If economic revisionism is to
drive a departure from the formula the Court employed in Basic, said amici,
that decision should be made by Congress and not the Court.
Federal
courts invoke the fraud-on-the-market theory to answer the narrow question of
whether the plaintiff’s claims, particularly reliance, can be established on a
common and class-wide bases, said the financial economists, not to establish
that a misstatement harmed each member of the class. What the Basic Court