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On Feb. 28, the Supreme Court issued a decision that will greatly impact securities class action litigation.
The high court ruled 6-3 that shareholders of Amgen Inc. could bring a securities fraud class action against the biotechnology company without first showing that misinformation had materially and fraudulently inflated the company’s stock price. Experts say the decision will make it easier for shareholders to bring securities class actions against corporate defendants.
In the suit, Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, Amgen shareholders accused the company of misleading them between April 2004 and May 2007 by embellishing the safety of its anti-anemia drugs. The plaintiffs sought class certification based on the “fraud on the market” theory the Supreme Court endorsed in its 1988 Basic Inc. v. Levinson decision. The theory reasons that stock purchasers are presumed to rely on the truthfulness of publicly available information.
In November 2011, the 9th Circuit allowed the class action against Amgen to proceed. Amgen appealed, and various business groups supported it—including the U.S. Chamber of Commerce, which said the 9th Circuit’s decision would encourage premature class certifications, and the Securities and Exchange Commission, which said the decision would force Amgen to settle possibly frivolous claims.
Nonetheless, the Supreme Court’s Feb. 28 decision upheld the 9th Circuit’s ruling. The court specified that though Amgen shareholders will ultimately have to prove the company’s alleged misrepresentations fraudulently inflated its stock prices, they didn’t need to do so at the outset of the litigation.
Ronald Miller, vice president of NERA Economic Consulting, says the Supreme Court’s decision could result in more securities class actions coming through the pipeline.
“[Amgen] will make it easier, in some circuits, for plaintiffs to certify classes in securities class actions,” Miller says. “Further, by removing consideration of materiality from the class certification stage, it may make cases proceed more quickly. From the point of view of our analysis of trends in securities class actions, if, indeed, litigants had been delaying the progress of cases waiting to see the results of Amgen, then we would expect to see more settlements and more dismissals in the rest of 2013. The Supreme Court provided a clear answer that should allow litigation to move forward.”
Christopher McDonald, a Labaton Sucharow partner who represents the Amgen plaintiffs, says that “the most significant takeaway for in-house counsel is that Basic v. Levinson’s fraud on the market presumption of reliance in securities fraud cases is the law of the land for the foreseeable future.”