June 2012 / Special Alert
d
A legal update from Dechert’s Litigation Group
Related Practices
■ Appellate
■ Complex Commercial
Litigation
■ White Collar and
Securities
Legal Analysis: Anticipating How the U.S. Supreme
Court May Rethink Fraud-on-the-Market Standards
for Securities Class Actions
Key Points
The Supreme Court has granted review in
Amgen Inc. v. Connecticut Retirement Plans
& Trust Funds to address the findings that a
district court must make before certifying
that a securities fraud ca se may proceed
as a class action.
The question presented is wh ether
securities fraud plaintiffs must prove that
an alleged misrepresentation or omission
is “material” as a predicate to class certi-
fication based on the so-called “fraud-on-
the-market theory,” which is a linchpin of
class treatment in most securities fraud
cases.
The Court’s decision in Amgen has the
potential to redraw the important battle
lines in private securities litigation, since
class certification is often pivotal to the
outcome in such lawsuits.
There is a possibility Amgen could have an
even more fundamental impact if the
Court takes the opportunity to reconsider
the validity or appropriate application of
the fraud-on-the-market theory.
The Supreme Court in recent Terms has taken
up a number of issues relating to class
certification, including last year in Wal-Mart
Stores, Inc. v. Dukes,1 where the Court con-
firmed that district courts must conduct a
“rigorous analysis” to support each o f the
findings required for class certification under
Rule 23 of the Federal Rules of Civil Procedure.
On June 11, 2012, the C ourt granted certiorari
1 131 S. Ct. 2541 (2011).
in a securities fraud case, Amgen Inc . v.
Connecticut Retirement Plans & Trust Funds,2 to
address the scope of the findings that must be
made under Rule 23 to support invocation of
the “fraud -on-the-market theory,” a key
underpinning for class certification in most
private securities fraud suits. The quest ion
presented in Amgen is whether a district court
must find that the alleged misrepresent ation or
omission is “material” before it may cert ify a
class based on the fraud-on-the-market the ory.
Amgen is likely to determine the contours of
the class certification battle for the majority of
securities fraud lawsuits going forward. I f
materiality must be found to support class
certification, defendants will have a fertile
opportunity to defeat class treatment be cause
materiality is often a central issue that can be
attacked through sophisticated expert evi-
dence. If not, plaintiffs will have a relat ively
easy time establishing the prerequisites for
fraud-on-the-market theory, and class certifica-
tion in securities litigation involving widely
traded securities will remain routine. The issue
is critical for both sides because very few
securities class actions ever get to t rial and
most are settled following certification of the
plaintiff class. More broadly, Amgen could
potentially serve as a vehicle for the Court to
rethink the foundation or application of the
fraud-on-the-market theory.
2 80 U.S.L.W. 3678 (U.S. June 11, 2012) (No. 11-
1085).
