Supreme Court's Decision Reshapes Class Certification For Future Securities Class Actions

Michael D. "Mike" Redondo is a Associate in our Miami office

On February 27, 2013, the U.S. Supreme Court addressed a long-standing circuit split on the issue of whether, when bringing a securities fraud class action under Section 10(b) of the Securities Exchange Act of 1934, a plaintiff must prove that the defendant's alleged misrepresentations are material at the class certification stage and whether a lack of materiality can be used by the defendant to rebut the "fraud-on-the-market" presumption of reliance.

The "fraud-on-the-market" theory was endorsed by the Supreme Court in Basic Inc. v. Levinson, 485 US 224 (1988), and is based on the premise that "certain well developed markets are efficient processors of public information [and that in] such markets, the market price of shares will reflec[t] all publicly available information." The court also held in Basic that if a market is shown to be efficient, courts may presume that investors who invest in that