On August 20, 2010, the Seventh Circuit Court of Appeals affirmed a lower court's finding that shareholders of Conseco Inc. (Conseco) could use the fraud-on-the-market doctrine to establish proof of reliance and causation for purposes of certifying a securities fraud class action claim. Schleicher v. Wendt, No. 09-2154 (Decision). The court rejected the appellants' argument that the class should not be certified because it embraced both long and short sellers of Conseco's common stock and found that unduly optimistic statements that stop a stock price from declining provide an equivalent basis for the fraud-on-the-market doctrine as false statements that drive up the stock price.
The court also made a point of criticizing the reasoning of the Fifth Circuit in Oscar Private Equity Investments v. Allegiance Telecom, No. 05-10791, 487 F.3d 261 (5th Cir. 2007), which held that a district court should resolve issues of whether contested statements actually caused material changes in stock prices before certifying a class. Observing that requiring proof of loss causation at the certification stage would make class certification "impossible in many securities statutes," the court rejected the Fifth Circuit's holding. The court went on to say that "unlike the Firth Circuit," it did not understand the Supreme Court's decision in Basic v. Levinson, No. 86-279, 485 U.S. 224 (1988), to "license each court of appeals to set up its own criteria for certification of securities class actions or to 'tighten' Rule 23's requirements."