Supreme Court Reaffirms Fraud-on-the-Market Theory of Reliance
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After agreeing to revisit its landmark ruling in Basic, Inc. v. Levinson,the U.S. Supreme Court has substantially reaffirmed the decision, which affords plaintiffs in federal securities litigation a rebuttable presumption of reliance when they can establish an open, developed, and efficient market for the stock in question. Halliburton Co. v. Erica P. John Fund, Inc. The Court rejected arguments that its intervening decisions as well as empirical evidence had undermined Basic. Even so, it held that defendants may attempt to rebut the presumption at the class certification stage by offering direct evidence that the market was not efficient.
Basic Principles
Most federal securities fraud litigation is brought pursuant to Section 10(b) of the Securities Exchange Act of 1934 (the Act) and Rule 10b-5 thereunder. To recover damages in a Section 10(b) action, a plaintiff must show: (a) the defendant made a misrepresentation or omission of material fact; (b) scienter; (c) a connection between the misrepresentation or omission and the purchase or sale of a security; (d) reliance on the misstatement or omission; (e) economic loss; and (f) loss causation. Amgen, Inc. v. Connecticut Retirement Plans and Trust Funds.
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